POWSZECHNY ZAKLAD UBEZPIECZE? SPÓLKA AKCYJNA

Powszechny Zaklad Ubezpiecze? Spólka Akcyjna

PZU

PLPZU0000011

Multiline Insurance & Brokers

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Powszechny Zaklad Ubezpieczen : Condensed interim consolidated financial statements for Q1 2020

May 29, 2020 at 01:51 am EDT

Powszechny Zakład Ubezpieczeń Spółka Akcyjna

Group

Condensed interim

consolidated financial statements for Q1 2020

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group
Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020
Table of contents
Introduction ........................................................................................................................................	4
Financial highlights .............................................................................................................................	7
1.	Selected consolidated financial data of the PZU Group............................................................................................	7
2.	Selected individual financial data of PZU (PAS) ........................................................................................................	7
3.	Selected non-consolidated financial data of Powszechny Zakład Ubezpieczeń na Życie Spółka Akcyjna (PAS)	... 8
4.	Summary of consolidated quarterly results ..............................................................................................................	8
Interim consolidated financial statements......................................................................................	10
1.	Interim consolidated profit and loss account..........................................................................................................	10
2.	Interim consolidated statement of comprehensive income ...................................................................................	11
3.	Interim consolidated statement of financial position .............................................................................................	12
4.	Interim consolidated statement of changes in equity.............................................................................................	13
5.	Interim consolidated cash flow statement ..............................................................................................................	16
Supplementary notes to the condensed interim consolidated financial statements ...................	18
1.	Information on PZU and the PZU Group ..................................................................................................................	18
2.	Shareholder structure...............................................................................................................................................	28
3.	Composition of the Management Board, Supervisory Board and PZU Group Directors........................................	29
4.	Key accounting policies, key estimates and judgments..........................................................................................	31
5.	Information about major events that materially influence the structure of financial statement items ...............	37
6.	Corrections of errors from previous years ...............................................................................................................	37
7.	Material events after the end of the reporting period .............................................................................................	37
8.	Supplementary notes to the condensed interim consolidated financial statements............................................	38
9.	Assets securing receivables, liabilities and contingent liabilities ...........................................................................	71
10.	Contingent assets and liabilities ..............................................................................................................................	72
11.	Commentary to the condensed interim consolidated financial statements..........................................................	72
12.	Capital management ................................................................................................................................................	74
13.	Segment reporting....................................................................................................................................................	75
14.	Commentary to segment reporting and investing activity .....................................................................................	86
15.	Impact of non-recurring events on operating results..............................................................................................	95
16.	Changes in the economic situation and business conditions with material effect on the fair value of financial
	assets and liabilities..................................................................................................................................................	96
17.	Management Board's position on previously published result forecasts.............................................................	103
18.	Issues, redemptions and repayments of debt securities and equity securities....................................................	103
19.	Default or breach of material provisions of loan agreements...............................................................................	103
20.	Granting of sureties or guarantees for loans or borrowings by PZU or its subsidiaries .......................................	103
21.	Dividends.................................................................................................................................................................	103
22.	Disputes...................................................................................................................................................................	104
23.	Evaluation of the PZU Group companies' standing by rating agencies ................................................................	107
24.	Related party transactions .....................................................................................................................................	108
25.	Other information ...................................................................................................................................................	109

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group
Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020
PZU's quarterly unconsolidated financial information (in compliance with PAS) ......................	111
1.	Interim balance sheet .............................................................................................................................................	111
2.	Interim statement of off-balance sheet line items ................................................................................................	113
3.	Interim revenue account of non-life insurance......................................................................................................	114
4.	Interim general profit and loss account .................................................................................................................	115
5.	Interim statement of changes in equity .................................................................................................................	116
6.	Interim cash flow statement...................................................................................................................................	118
7.	Introduction ............................................................................................................................................................	120
8.	Key accounting principles (accounting policy)......................................................................................................	120
9.	Changes in accounting policies ..............................................................................................................................	120
10.	Impairment loss on the goodwill arising from the acquisition of Alior Bank........................................................	120

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Introduction

Compliance statement

These condensed interim consolidated financial statements of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group ("condensed interim consolidated financial statements" and "PZU Group", respectively) have been prepared in line with the requirements of International Accounting Standard 34 "Interim Financial Reporting", as endorsed by the Commission of European Communities, and the requirements set forth in the Regulation on Current and Periodic Information.

These condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the PZU Group for 2019.

Parent company's quarterly standalone financial information

Pursuant to §62 Section 1 of the Regulation on Current and Periodic Information, quarterly standalone financial information of the PZU Group's parent company, i.e. PZU, forms part of these condensed interim consolidated financial statements.

According to Article 45 section 1a of the Accounting Act, the financial statements of issuers of securities admitted to trading on one of the regulated markets of the European Economic Area countries may be prepared in accordance with IFRS.

As the PZU Shareholder Meeting has not made the decision referred to in Article 45 Section 1c of the Accounting Act in the matter of preparation of financial statements pursuant to IFRS, PZU's standalone statements are prepared in accordance with the Polish Accounting Standards (PAS) defined in the Accounting Act and in the executive regulations issued on its basis, among others:

Finance Minister's Regulation of 12 April 2016 on the special accounting principles for insurance and reinsurance undertakings (Journal of Laws of 2016, Item 562);
Finance Minister's Regulation of 12 December 2001 on the detailed principles of recognition, valuation methods, scope of disclosure and presentation of financial instruments (consolidated text: Journal of Laws of 2017, Item 277).

In matters not regulated by the Accounting Act and the executive acts issued on its basis, Polish Accounting Standards or IFRS are applied accordingly.

Period covered by the condensed interim consolidated financial statements

These condensed interim consolidated financial statements cover the period of 3 months from 1 January to 31 March 2020.

The financial statements of the subsidiaries are prepared for the same reporting period as the financial statements of the parent company.

Functional and presentation currency

PZU's functional and presentation currency is the Polish zloty. Unless noted otherwise, all amounts presented in these consolidated financial statements are stated in millions of Polish zloty.

The functional currency of the companies domiciled in Lithuania, Latvia and Sweden is the euro, of those domiciled in Ukraine is the Ukrainian hryvnia and of that domiciled in the United Kingdom is the British pound.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

FX rates

Financial data of foreign subsidiaries are converted into Polish zloty as follows:

assets and liabilities - at the average exchange rate set by the National Bank of Poland at the end of the reporting period;
items of the profit and loss account and other comprehensive income - at the arithmetic mean of average exchange rates set by the National Bank of Poland as at the dates ending each month of the reporting period.

Currency		1 January -		1 January -		31 March 2020		31 December 2019
	31 March 2020		31 March 2019

	Euro		4.3963		4.2978		4.5523		4.2585
pound sterling	5.0956	4.9733	5.1052	4.9971
	Ukrainian hryvnia		0.1554		0.1388		0.1508		0.1602

Going concern assumption

These condensed interim consolidated financial statements have been drawn up under the assumption that PZU Group companies remain a going concern in the foreseeable future, i.e. in the period of at least 12 months after the end of the reporting period. As at the date of signing these condensed interim consolidated financial statements, there are no facts or circumstances that would indicate a threat to the ability of the PZU Group to continue their activity in the period of 12 months after the end of the reporting period as a result of an intentional or an induced discontinuation or a material curtailment of their hitherto activity.

Discontinued operations

In the 3-month period ended 31 March 2020, the PZU Group companies did not discontinue any type of activity.

Seasonal or cyclical business

The PZU Group's business is neither seasonal nor subject to business cycles to a significant extent.

Glossary

The most important terms, abbreviations and acronyms used in the condensed interim consolidated financial statements are explained below.

Names of companies

AAS Balta - Apdrošināšanas Akciju Sabiedrība Balta.

Alior Bank - Alior Bank SA.

Alior Bank Group - Alior Bank with its subsidiaries listed in section 1.2.

Pekao Group - Pekao with its subsidiaries listed in section 1.2.

LD - Lietuvos Draudimas AB

Link4 - Link4 Towarzystwo Ubezpieczeń SA.

Pekao - Bank Pekao SA.

PFR - Polski Fundusz Rozwoju SA.

PIM - Pekao Investment Management SA.

PZU, parent company, parent - Powszechny Zakład Ubezpieczeń Spółka Akcyjna.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

PZU LT GD - UAB PZU Lietuva Gyvybes Draudimas.

PZU Ukraine - PrJSC IC PZU Ukraine.

PZU Ukraine Life - PrJSC IC PZU Ukraine Life Insurance.

PZU Życie - Powszechny Zakład Ubezpieczeń na Życie Spółka Akcyjna.

TFI PZU - Towarzystwo Funduszy Inwestycyjnych PZU SA.

TUW PZUW - Towarzystwo Ubezpieczeń Wzajemnych Polski Zakład Ubezpieczeń Wzajemnych.

Other definitions

BFG - Bank Guarantee Fund CGU - cash generating unit.

CODM - chief operating decision maker within the meaning of IFRS 8 Operating Segments.

IBNR - Incurred But Not Reported or 2nd provision - provision for losses and accidents incurred but not reported.

PZU standalone financial statements for 2019 - annual standalone financial statements of Powszechny Zakład Ubezpieczeń Spółka Akcyjna for 2019 prepared in accordance with PAS, signed by the PZU Management Board on 11 March 2020.

KNF - Polish Financial Supervision Authority.

Commercial Company Code - Act of 15 September 2000 entitled Commercial Company Code (consolidated text: Journal of Laws of 2019, Item 505).

IFRS - International Financial Reporting Standards as endorsed by the Commission of European Communities ("IFRS"), published and in force as at 31 March 2020.

NBP - National Bank of Poland;

OFE PZU - Otwarty Fundusz Emerytalny PZU "Złota Jesień".

POCI - Purchased or originated credit-impaired financial assets.

PAS - Accounting Act of 29 September 1994 (consolidated text: Journal of Laws of 2019 Item 351) and regulations issued thereunder.

Regulation on Current and Periodic Information - Finance Minister's Regulation of 29 March 2018 on Current and Periodic Information Transmitted by Securities Issuers and the Conditions for Recognizing the Information Required by the Regulations of a Non-Member State as Equivalent (Journal of Laws of 2018, item 757).

IASB - International Accounting Standards Board.

Consolidated financial statements - consolidated financial statements of the PZU Group prepared in accordance with IFRS for the year ended 31 December 2019.

CJEU - Court of Justice of the European Union.

KNF Office - Office of the Polish Financial Supervision Authority.

Insurance Activity Act - Act of 11 September 2015 on Insurance and Reinsurance Activity (consolidated text: Journal of Laws of 2020, item 895).

Act on rules for termination of employment - the Act of 13 March 2003 on special rules for termination of employment for reasons not attributable to employees (consolidated text: Journal of Laws of 2018, Item 1969)

PZU Ordinary Shareholder Meeting - Ordinary Shareholder Meeting of Powszechny Zakład Ubezpieczeń Spółka Akcyjna.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Financial highlights

1. Selected consolidated financial data of the PZU Group

	m PLN	m PLN	m EUR	m EUR
Data from the consolidated profit and loss account	1 January -	1 January -	1 January -	1 January -
	31 March 2020	31 March 2019	31 March 2020	31 March 2019
Gross written premiums	6,097	5,901	1,387	1,373
Net earned premium	5,762	5,592	1,311	1,301
Revenue from commissions and fees	1,019	961	232	224
Net investment result	1,856	3,018	422	702
Net insurance claims and benefits	(3,281)	(3,958)	(746)	(921)
Profit before tax	655	1,487	149	346

Profit attributable to equity holders of the Parent Company	116	747	26	174
Profit attributable to holders of non-controlling interests	173	265	39	62

Basic and diluted weighted average number of common shares	863,331,319	863,315,217	863,331,319	863,315,217
Basic and diluted earnings per common share (in PLN/EUR)	0.13	0.87	0.03	0.20

	m PLN	m PLN	m EUR	m EUR
Data from the consolidated statement of financial position	31 March	31 December	31 March	31 December
	2020	2019	2020	2019
Assets	357,215	343,340	78,469	80,625
Share capital	86	86	19	20
Equity attributable to equity holders of the Parent	16,199	16,169	3,558	3,797
Non-controlling interest	23,443	23,119	5,150	5,429
Total equity	39,642	39,288	8,708	9,226
Basic and diluted number of common shares	863,299,823	863,323,224	863,299,823	863,323,224

Carrying amount per common share (in PLN/EUR)	18.76	18.73	4.12	4.40

	m PLN	m PLN	m EUR	m EUR
Data from the consolidated cash flow statement	1 January -	1 January -	1 January -	1 January -
	31 March 2020	31 March 2019	31 March 2020	31 March 2019

Net cash flows from operating activities	8,000	979	1,820	228
Net cash flows from investing activities	(1,007)	(7,289)	(229)	(1,696)

Net cash flows from financing activities	(1,883)	(473)	(428)	(110)
Total net cash flows	5,110	(6,783)	1,162	(1,578)

2. Selected individual financial data of PZU (PAS)

			m PLN		m PLN		m EUR		m EUR
Data from the balance sheet		31 March		31 December		31 March		31 December
		2020	2019	2020	2019
	Assets		42,898		41,596		9,423		9,768
Share capital	86	86	19	20

	Total equity		15,157		14,957		3,330		3,512
Basic and diluted number of common shares	863,523,000	863,523,000	863,523,000	863,523,000

	Carrying amount per common share (in PLN/EUR)		17.55		17.32		3.86		4.07

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Data from the revenue account of non-life insurance and the general		m PLN		m PLN		m EUR		m EUR
	1 January -		1 January -		1 January -		1 January -
profit and loss account
	31 March 2020		31 March 2019		31 March 2020		31 March 2019


	Gross written premiums		3,757		3,729		855		868
Technical result of non-life insurance	370	358	84	83

	Net investment result 1)		(256)		130		(58)		30
Net result	(110)	237	(25)	55
	Basic and diluted weighted average number of common shares		863,523,000		863,523,000		863,523,000		863,523,000
Basic and diluted result per common share (in PLN/EUR)	(0.13)	0.27	(0.03)	0.06

Including the item "Share of the net profit (loss) of subordinated entities measured by the equity method".

3. Selected non-consolidated financial data of Powszechny Zakład Ubezpieczeń na Życie Spółka Akcyjna (PAS)

			m PLN		m PLN		m EUR		m EUR
Data from the balance sheet		31 March		31 December		31 March		31 December
		2020	2019	2020	2019

	Assets		27,920		28,068		6,133		6,591
Total equity	4,874	4,524	1,071	1,062
Data from the technical life insurance account and the general profit		m PLN		m PLN		m EUR		m EUR

	1 January -		1 January -		1 January -		1 January -
and loss account
	31 March 2020		31 March 2019		31 March 2020		31 March 2019

	Gross written premiums		2,184		2,070		497		482
Technical life insurance result	444	342	101	80
	Net investment result		(299)		356		(68)		83
Net profit	315	235	72	55

4. Summary of consolidated quarterly results

The net financial result of the PZU Group for the period of 3 months ended 31 March 2020 was PLN 289 million, down by 71.4% from the net result in the same period last year. The net profit attributable to shareholders of the parent company was PLN 116 million, compared to PLN 747 million in 2019 (down 84.5%).

Excluding one-off events1, the net result fell 20.4% compared to the previous year.

ROE attributable to the parent company (PZU) for the period from 1 January to 31 March 2020 was 2.9%, down 16.6 percentage points from the same period last year.

The following factors also affected PZU Group's activity after the 3-month period ended 31 March 2020, as compared to the same period last year:

increase in gross written premium in the mass client segment, including the upswing in sales of ADD and other insurance. In life insurance the increasing level of premiums in unit-linked insurance products offered jointly with the banks and development of the portfolio of group health products;
higher profitability of the mass insurance segment driven by the lower loss ratio in non-motor insurance, including a lower level of losses caused by weather events;

1Non-recurring events include: impairment loss on the goodwill arising from the acquisition of Alior Bank (PLN 516 million) and the impact exerted by conversion of long-term policies into yearly renewable term agreements in type P group insurance.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

higher underwriting result in the corporate client segment due to improved profitability in the motor insurance portfolio, higher income on investments allocated to the segment, while the sales level was about the same and the loss ratio increased in the property insurance portfolio;
higher profitability in group and individually continued insurance with a growing health insurance portfolio as a result of a decrease in the loss ratio on certain risks in the group protection portfolio and higher operating expenses;
slightly higher result on individual insurance due to the expanding insurance portfolio, mainly bancassurance, offset by higher operating expenses;
lower result on listed equities, in particular due to the deteriorated market conditions on the capital market due to the COVID-19 pandemic;
lower results in the banking activity associated with the non-recurring effect of recognizing an impairment loss on goodwill arising from the acquisition of Alior Bank (PLN 516 million), recognition in Q1 2020 of an additional provision for projected deterioration of credit portfolio quality in Pekao and a negative effect of the CJEU judgment on consumer loans. The effects are partially offset by lower fees paid to the Bank Guarantee Fund.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Interim consolidated financial statements

1. Interim consolidated profit and loss account

					1 January -		1 January -
Consolidated profit and loss account		Note			31 March 2019
		31 March 2020
						(restated) 2)

	Gross written premiums		8.1		6,097		5,901
Reinsurers' share in gross written premium			(156)	(102)

	Net written premiums				5,941		5,799
Movement in net provision for unearned premiums			(179)	(207)

	Net earned premium				5,762		5,592

	Revenue from commissions and fees		8.2		1,019		961
Interest income calculated using the effective interest rate	8.3	2,996	2,859
	Other net investment income		8.4		-		194
Result on derecognition of financial instruments and investments	8.5	75	53
	Movement in allowances for expected credit losses and impairment losses		8.6		(660)		(342)
	on financial instruments

Net movement in fair value of assets and liabilities measured at fair value	8.7	(555)	254

	Other operating income		8.8		320		274

	Claims, benefits and movement in technical provisions				(3,491)		(4,111)
Reinsurers' share in claims, benefits and movement in technical provisions			210	153

	Net insurance claims and benefits		8.9		(3,281)		(3,958)

	Fee and commission expenses		8.10		(235)		(174)
Interest expenses	8.11	(485)	(525)
	Acquisition expenses		8.12		(835)		(793)
Administrative expenses	8.12	(1,679)	(1,620)
	Other operating expenses		8.13		(1,786) 1)		(1,286)
Operating profit			656	1,489

	Share of the net financial results of entities measured by the equity method				(1)		(2)
Profit before tax			655	1,487

	Income tax		8.14		(366)		(475)
Net profit, including:			289	1,012

	- profit attributable to the equity holders of the Parent Company				116		747
- profit (loss) attributed to holders of non-controlling interest			173	265

	Weighted average basic and diluted number of common shares		8.15		863,331,319		863,315,217
Basic and diluted profit (loss) per common share (in PLN)	8.15	0.13	0.87

including impairment loss on goodwill (in the amount of PLN 516 million) arising from the acquisition of Alior Bank. Additional information on this matter is presented in section 8.16.1.
Information on restatement of data for the period from 1 January to 31 March 2019 is presented in section 4.2.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

2. Interim consolidated statement of comprehensive income

					1 January -		1 January -
Consolidated statement of comprehensive income		Note			31 March 2019
		31 March 2020
						(restated)1)

	Net profit				289		1,012
Other comprehensive income	8.14	64	123

	Subject to subsequent transfer to profit or loss				112		54
	Valuation of debt instruments			(403)	(22)

	Measurement of loan receivables from clients				(12)		9
	Foreign exchange translation differences			87	2

	Cash flow hedging				440		65
	Not to be reclassified to profit or loss in the future			(48)	69

	Valuation of equity instruments measured at fair value through other				(48)		68
	comprehensive income

	Reclassification of real property from property, plant and equipment to			-	1
	investment property

	Total net comprehensive income				353		1,135
- comprehensive income attributable to equity holders of the Parent			28	869
Company


	- comprehensive income attributed to holders of non-controlling interest				325		266

Information on restatement of data for the period from 1 January to 31 March 2019 is presented in section 4.2.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

3. Interim consolidated statement of financial position

Assets	Note	31 March 2020	31 December 2019
	Goodwill	8.16	3,572	4,053
Intangible assets	8.17	3,111	3,096

	Other assets	8.18	627	734
Deferred acquisition costs		1,599	1,574

	Reinsurers' share in technical provisions	8.30	1,886	1,856
Property, plant and equipment	8.19	4,194	4,226

	Investment property		2,047	1,981
Entities measured by the equity method		6	11

	Loan receivables from clients	8.20	198,849	194,868
Financial derivatives	8.21	6,786	3,107

	Investment financial assets	8.22	111,874	111,416
	Measured at amortized cost		51,708	45,938
	Measured at fair value through other comprehensive income		49,114	55,211
	Measured at fair value through profit or loss		11,052	10,267

	Deferred tax assets		2,412	2,313
Receivables	8.23	6,666	5,737

	Cash and cash equivalents		13,049	7,788
Assets held for sale	8.27	537	580

	Total assets		357,215	343,340

Equity and liabilities	Note	31 March 2020	31 December 2019

	Equity
Equity attributable to equity holders of the Parent		16,199	16,169

	Share capital	8.28	86	86
	Other capital		12,945	13,036

	Retained earnings		3,168	3,047
	Retained profit or loss		3,052	(248)
	Net profit		116	3,295
Non-controlling interest		23,443	23,119
	Total equity		39,642	39,288

	Liabilities
Technical provisions	8.30	47,180	47,329

	Subordinated liabilities	8.31	6,714	6,700
Liabilities on the issue of own debt securities	8.32	7,869	9,273

	Liabilities to banks	8.33	7,622	6,604
Liabilities to clients under deposits	8.34	227,734	218,588

	Financial derivatives	8.21	7,018	3,018
Other liabilities	8.35	11,237	10,376
	Provisions for employee benefits		556	534
Other provisions	8.36	914	867
	Deferred tax liability		693	734
Liabilities related directly to assets classified as held for sale	8.27	36	29
	Total liabilities		317,573	304,052
Total equity and liabilities		357,215	343,340

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

4. Interim consolidated statement of changes in equity

								Equity attributable to equity holders of the parent
								Other capital						Retained earnings			Non-		Total
Statement of changes
											Actuarial gains		Foreign
	Share								Other									controlling		equity
in consolidated equity																Total
	capital		Treasury		Supplemen-		Revaluation			and losses related		exchange		Retained		Net profit		interest
			shares		tary capital		reserve		reserve		to provisions for		translation		profit or loss
							capital
											employee benefits		differences


Note		8.28																			1.4
As at 1 January 2020	86	(7)	13,113	294	(324)	1	(41)	3,047	-	16,169	23,119	39,288
Valuation of equity instruments		-		-		(4)		(52)		-		-		-		-	-		(56)		8	(48)
Valuation of debt instruments	-	-	-	(219)	-	-	-	-	-	(219)	(184)	(403)
Measurement of loan receivables from clients				-		-		(3)		-		-		-		-	-		(3)		(9)	(12)
Cash flow hedging	-	-	-	102	-	-	-	-	-	102	338	440

Foreign exchange translation differences		-		-		-		-		-		-		88		-	-		88		(1)	87
Total net other comprehensive income	-	-	(4)	(172)	-	-	88	-	-	(88)	152	64

Net profit (loss)		-		-		-		-		-		-		-		-	116		116		173	289
Total comprehensive income	-	-	(4)	(172)	-	-	88	-	116	28	325	353

Other changes, including:		-		-		(3)		-		-		-		-		5	-		2		(1)	1
Distribution of financial result	-	-	(5)	-	-	-	-	5	-	-	-	-

Transactions with non-controlling shareholders						2													2		(1)	1
As at 31 March 2020	86	(7)	13,106	122	(324)	1	47	3,052	116	16,199	23,443	39,642

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Interim statement of changes in consolidated equity (continued)

								Equity attributable to equity holders of the parent
Statement of changes								Other capital						Retained earnings		Non-		Total

										Actuarial gains		Foreign
in consolidated equity		Share								Other						Total		controlling	equity
(restated)			Treasury		Supplemen-		Revaluation			and losses related		exchange		Retained			interest
	capital					reserve					Net profit

				shares		tary capital		reserve		capital		to provisions for		translation	profit or loss
											employee benefits		differences


Note		8.28																	1.4
As at 1 January 2019	86	(11)	12,660	(65)	18	-	(36)	2,273	-	14,925	22,482	37,407
Valuation of equity instruments		-		-		(1)		(8)		-		-		-	-	-		(9)	11	2
Valuation of debt instruments	-	-	-	334	-	-	-	-	-	334	41	375

Measurement of loan receivables from clients				-		-		4		-		-		-	-	-		4	14	18
Cash flow hedging	-	-	-	31	-	-	-	-	-	31	69	100

Foreign exchange translation differences		-		-		-		-		-		-		(5)	-	-		(5)	1	(4)
Actuarial gains and losses related to provisions	-	-	-	-	-	1	-	-	-	1	(2)	(1)
for employee benefits

Reclassification of real property from property,		-		-		-		6		-		-		-	-	-		6	-	6
plant and equipment to investment property

Total net other comprehensive income	-	-	(1)	367	-	1	(5)	-	-	362	134	496

Net profit (loss)		-		-		-		-		-		-		-	-	3,295		3,295	1,890	5,185
Total comprehensive income	-	-	(1)	367	-	1	(5)	-	3,295	3,657	2,024	5,681

Other changes, including:		-		4		454		(8)		(342)		-		-	(2,521)	-		(2,413)	(1,387)	(3,800)
Distribution of financial result	-	-	444	-	(340)	-	-	(2,522)	-	(2,418)	(1,385)	(3,803)
Transactions on treasury shares		-		4		-		-		-		-		-	-	-		4	-	4
Transactions with non-controlling shareholders	-	-	2	-	-	-	-	-	-	2	2	4
Sale of revalued real estate and other		-		-		8		(8)		(2)		-		-	1	-		(1)	(4)	(5)
As at 31 December 2019	86	(7)	13,113	294	(324)	1	(41)	(248)	3,295	16,169	23,119	39,288

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Interim statement of changes in consolidated equity (continued)

								Equity attributable to equity holders of the parent
								Other capital						Retained earnings

Statement of changes												Actuarial gains								Non-	Total
in consolidated equity		Share								Other		and losses		Foreign						controlling
															Total			equity
(restated)		capital		Treasury		Supplemen-		Revaluation			related to		exchange		Retained		Net profit		interest
					reserve
				shares		tary capital		reserve		capital		provisions for		translation		profit or loss
											employee		differences

												benefits

As at 1 January 2019		86		(11)		12,660		(65)		18		-		(36)		2,273		-	14,925	22,482	37,407
Valuation of equity instruments	-	-	-	67	-	-	-	-	-	67	1	68
Valuation of debt instruments		-		-		-		37		-		-		-		-		-	37	(59)	(22)
Measurement of loan receivables from clients					-	2	-	-	-	-	-	2	7	9
Cash flow hedging		-		-		-		13		-		-		-		-		-	13	52	65
Foreign exchange translation differences	-	-	-	-	-	-	2	-	-	2	-	2

Reclassification of real property from property, plant and		-		-		-		1		-		-		-		-		-	1	-	1
equipment to investment property

Total net other comprehensive income	-	-	-	120	-	-	2	-	-	122	1	123

Net profit (loss)		-		-		-		-		-		-		-		-		747	747	265	1,012
Total comprehensive income	-	-	-	120	-	-	2	-	747	869	266	1,135
Other changes, including:		-		3		4		-		-		-		-		(3)		-	4	2	6
Distribution of financial result	-	-	3	-	-	-	-	(3)	-	-	-	-
Transactions on treasury shares		-		3		-		-		-		-		-		-		-	3	-	3
Transactions with non-controlling shareholders	-	-	1	-	-	-	-	-	-	1	2	3

As at 31 March 2019		86		(8)		12,664		55		18		-		(34)		2,270		747	15,798	22,750	38,548

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

5. Interim consolidated cash flow statement

				1 January -		1 January -
Consolidated cash flow statement		Note		31 March 2019
		31 March 2020
					(restated)

	Profit before tax			655		1,487
	Adjustments		7,345	(508)

	Movement in loan receivables from clients			(4,552)		(4,963)
	Movement in liabilities under deposits		9,917	2,997

	Movement in the valuation of assets measured at fair value			555		(254)
	Interest income and expenses		(678)	(542)

	Realized gains/losses from investing activities and impairment losses			558		249
	Net foreign exchange differences		100	(96)
	Movement in deferred acquisition expenses			(25)		(31)
	Amortization of intangible assets and depreciation of property, plant and		309	278
	equipment


	Movement in the reinsurers' share in technical provisions			(30)		(58)
	Movement in technical provisions		(149)	571

	Movement in receivables			367		358
	Movement in liabilities		510	942

	Cash flow on investment contracts			(2)		(4)
	Acquisitions and redemptions of participation units and investment		27	60
	certificates of mutual funds


	Income tax paid			(463)		(329)
	Other adjustments		901	314

	Net cash flows from operating activities			8,000		979
Cash flow from investing activities

	Proceeds			177,094		225,822
	- sale of investment property		-	1

	- proceeds from investment property			63		78
	- sale of intangible assets and property, plant and equipment		4	13
	- sale of ownership interests and shares			649		931
	- realization of debt securities		50,180	71,353
	- closing of buy-sell-back transactions			75,016		70,937
	- closing of term deposits with credit institutions		44,040	72,919

	- realization of other investments			6,937		9,402
	- interest received		193	174

	- dividends received			1		4
	- other investment proceeds		11	10

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Consolidated cash flow statement (continued)

					1 January -		1 January -
Consolidated cash flow statement		Note			31 March 2019
		31 March 2020
						(restated)


	Expenditures				(178,101)		(233,111)
	- purchase of investment property			(13)	(19)

	- expenditures for the maintenance of investment property				(46)		(33)
	- purchase of intangible assets and property, plant and equipment			(254)	(155)

	- purchase of ownership interests and shares				(611)		(720)
	- purchase of ownership interests and shares in subsidiaries			-	(4)

	- decrease in cash due to the sale of entities and change in the scope of				-		(32)
	consolidation

	- purchase of debt securities			(49,160)	(77,930)

	- opening of buy-sell-back transactions				(76,293)		(70,600)
	- purchase of term deposits with credit institutions			(44,864)	(74,274)

	- purchase of other investments				(6,850)		(9,344)
	- other expenditures for investments			(10)	-

	Net cash flows from investing activities				(1,007)		(7,289)
Cash flows from financing activities
	Proceeds				44,633		37,751
	- proceeds from loans and borrowings	8.37	3,075	295
	- proceeds on the issue of own debt securities		8.37		2,415		1,320
	- opening of repurchase transactions	8.37	39,143	36,136
	Expenditures				(46,516)		(38,224)
	- repayment of loans and borrowings	8.37	(3,308)	(918)

	- redemption of own debt securities		8.37		(3,826)		(1,342)
	- closing of repurchase transactions	8.37	(39,247)	(35,832)

	- interest on loans and borrowings		8.37		(49)		(15)
	- interest on outstanding debt securities	8.37	(15)	(55)

	- expenditures on leases				(71)		(62)
Net cash flows from financing activities			(1,883)	(473)

	Total net cash flows				5,110		(6,783)
Cash and cash equivalents at the beginning of the period			7,788	17,055
	Movement in cash due to foreign exchange differences				151		22
Cash and cash equivalents at the end of the period, including:			13,049	10,294
	- restricted cash				50		19

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Supplementary notes to the condensed interim consolidated financial statements

1. Information on PZU and the PZU Group

1.1 PZU

The parent company in the PZU Group is PZU - a joint stock company with its registered office in Warsaw at Al. Jana Pawła II 24.

PZU has been entered in the National Court Register kept by the District Court for the Capital City of Warsaw in Warsaw, 12th Commercial Division of the National Court Register, under file number KRS 0000009831.

According to the Polish Classification of Business Activity and the Statistical Classification of Economic Activities in Europe, the core business of PZU consists of non-life insurance (65.12).

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

1.2 PZU Group companies and associates

							Date of		% of the share capital and % of votes
					Registered		obtaining		held directly or indirectly by PZU
	No.		Name of the entity			control /						Line of business and website

			office
						significant		31 March 2020		31 December 2019

							influence

	Consolidated companies
1	Powszechny Zakład Ubezpieczeń SA		Warsaw		n/a		n/a		n/a		Non-life insurance
					https://www.pzu.pl/grupa-pzu/spolki/pzu-sa

	2		Powszechny Zakład Ubezpieczeń na Życie SA		Warsaw		18.12.1991		100.00%		100.00%		Life insurance.
							https://www.pzu.pl/pl/grupa-pzu/spolki/pzu-zycie

3	Link4 Towarzystwo Ubezpieczeń SA		Warsaw	15.09.2014	100.00%	100.00%		Non-lifeinsurance.https://www.link4.pl/

	4		Towarzystwo Ubezpieczeń Wzajemnych Polski		Warsaw		20.11.2015		100.00%		100.00%		Non-lifeinsurance.https://www.tuwpzuw.pl/
		Zakład Ubezpieczeń Wzajemnych

5	Lietuvos Draudimas AB		Vilnius	31.10.2014	100.00%	100.00%		Non-life insurance. http://www.ld.lt/
	(Lithuania)


	6		Apdrošināšanas Akciju Sabiedrība Balta		Riga, Latvia		30.06.2014		99.99%		99.99%		Property insurance. http://www.balta.lv/
7	PrJSC IC PZU Ukraine		Kiev (Ukraine)	01.07.2005	100.00%	100.00%		Property insurance.http://www.pzu.com.ua/

	8		PrJSC IC PZU Ukraine Life Insurance		Kiev (Ukraine)		01.07.2005		100.00%		100.00%		Life insurance.http://www.pzu.com.ua/
9	UAB PZU Lietuva Gyvybes Draudimas		Vilnius	26.04.2002	99.34%	99.34%		Life insurance.https://pzugd.lt/
	(Lithuania)

	Consolidated companies - Pekao Group
10	Bank Pekao SA		Warsaw	07.06.2017	20.02%	20.02%		Banking services.https://www.pekao.com.pl/

	11		Pekao Bank Hipoteczny SA		Warsaw		07.06.2017		20.02%		20.02%		Banking services.http://www.pekaobh.pl/
12	Pekao Leasing sp. z o.o.		Warsaw	07.06.2017	20.02%	20.02%		Leasing services.http://www.pekaoleasing.com.pl/

	13		Pekao Investment Banking SA		Warsaw		07.06.2017		20.02%		20.02%		Brokerage services. http://pekaoib.pl/
14	Pekao Faktoring sp. z o.o.		Lublin	07.06.2017	20.02%	20.02%		Factoring services.https://www.pekaofaktoring.pl/
	15		Pekao Powszechne Towarzystwo Emerytalne SA in		Warsaw		07.06.2017		20.02%		20.02%		Management of pension funds.
		liquidation

16	Pekao Towarzystwo Funduszy Inwestycyjnych SA		Warsaw	11.12.2017	20.02%	20.02%		Creation, representing and management of mutual funds.
		https://www.pekaotfi.pl/tfi/

	17		Centrum Kart SA		Warsaw		07.06.2017		20.02%		20.02%		Auxiliary financial services. http://www.centrumkart.pl/
18	Pekao Financial Services sp. z o.o.		Warsaw	07.06.2017	46.81% 1)	46.81% 1)		Transfer agent.http://www.pekao-fs.com.pl/pl/
	19		Pekao Direct sp. z o. o.		Krakow		07.06.2017		20.02%		20.02%		Call-centerservices.https://www.pekaodirect.pl/
								19

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

							Date of		% of the share capital and % of votes
					Registered		obtaining		held directly or indirectly by PZU
	No.		Name of the entity		office		control /					Line of business and website
						significant		31 March 2020		31 December 2019

							influence
	Consolidated companies - Pekao Group - continued
	20		Pekao Property SA in liquidation 2)		Warsaw		07.06.2017		20.02%		20.02%	Development activity.
21	FPB - Media sp. z o.o. in bankruptcy		Warsaw	07.06.2017	20.02%	20.02%		Development activity.

	22		Pekao Fundusz Kapitałowy sp. z o.o. in liquidation		Warsaw		07.06.2017		20.02%		20.02%	Business consulting
23	Pekao Investment Management SA		Warsaw	11.12.2017	20.02%	20.02%		Asset management.
		https://pekaotfi.pl/o-nas/pekao-investment-mangament


	24		Dom Inwestycyjny Xelion sp. z o.o.		Warsaw		11.12.2017		20.02%		20.02%	Financial intermediation. https://www.xelion.pl/
	Consolidated companies - Alior Bank Group

	25		Alior Bank SA		Warsaw		18.12.2015		31.93%		31.93%	Banking services.https://www.aliorbank.pl/
26	Alior Services sp. z o.o.		Warsaw	18.12.2015	31.93%	31.93%		Other activity supporting financial services, excluding insurance and
		pension funds.

	27		Alior Leasing sp. z o.o.		Wroclaw		18.12.2015		31.93%		31.93%	Leasing services.
							https://www.aliorbank.pl/wlasna-dzialalnosc/alior-leasing.html

28	Meritum Services ICB SA		Gdańsk	18.12.2015	31.93%	31.93%		IT services.
	29		Alior TFI SA		Warsaw		18.12.2015		31.93%		31.93%	Asset management services and management of Alior SFIO subfunds.
							https://www.aliortfi.com/

30	New Commerce Services sp. z o.o.		Warsaw	18.12.2015	31.93%	31.93%		Sales of non-banking products, provision of a purchasing platform

	31		Absource sp. z o.o.		Krakow		04.05.2016		31.93%		31.93%	Service activity in the area of IT.
32	Serwis Ubezpieczeniowy sp. z o.o.		Katowice	30.01.2017	31.93%	31.93%		Brokerage activity.

	33		Corsham sp. z o.o		Warsaw		04.02.2019		31.93%		31.93%	Business consulting
34	RBL_VC sp. z o.o.		Warsaw	07.11.2019	31.93%	31.93%		Venture capital fund management activities
	35		Harberton sp. z o.o. 3)		Warsaw		19.02.2020		31.93%		n/a	Business consulting
	Consolidated companies - PZU Zdrowie Group
	36		PZU Zdrowie SA		Warsaw		02.09.2011		100.00%		100.00%	Medical serviceshttps://www.pzu.pl/pl/grupa-pzu/spolki/pzu-zdrowie
37	Centrum Medyczne Medica sp. z o.o.		Płock	09.05.2014	100.00%	100.00%		Medical services.http://cmmedica.pl/
	38		Sanatorium Uzdrowiskowe "Krystynka" sp. z o.o.		Ciechocinek		09.05.2014		99.09%		99.09%	Hospital, physical therapy and spa services.
							http://www.sanatoriumkrystynka.pl/

39	Przedsiębiorstwo Świadczeń Zdrowotnych i Promocji		Jaworzno	01.12.2014	100.00%	100.00%		Medical services.https://www.jaworzno.pzuzdrowie.pl/
Zdrowia ELVITA - Jaworzno III sp. z o.o.

	40		Przedsiębiorstwo Usług Medycznych PROELMED		Łaziska Górne		01.12.2014		57.00%		57.00%	Medical services.http://www.proelmed.pl/
		sp. z o.o.

								20

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

							Date of		% of the share capital and % of votes
					Registered		obtaining		held directly or indirectly by PZU
	No.		Name of the entity		office		control /					Line of business and website
						significant		31 March 2020		31 December 2019

							influence
	Consolidated companies - PZU Zdrowie Group - continued
	41		Centrum Medyczne Gamma sp. z o.o.		Warsaw		08.09.2015		60.46%		60.46%	Medical services.http://www.cmgamma.pl/
42	Polmedic sp. z o.o.		Radom	30.11.2016	100.00%	100.00%		Medical services.https://www.radom.pzuzdrowie.pl/

	43		Centrum Medyczne św. Łukasza sp. z o.o.		Częstochowa		09.01.2018		100.00%		100.00%	Medical services.https://www.czestochowa.pzuzdrowie.pl/
44	Alergo-Med Tarnów sp. z o.o.		Tarnów	31.01.2019	100.00%	100.00%		Medical services.https://www.tarnow.pzuzdrowie.pl/

	45		FCM Zdrowie sp. z o.o.		Warsaw		03.06.2019		100.00%		100.00%	Medical services.https://fcmzdrowie.pl/

46	Starówka sp. z o.o		Warsaw	03.06.2019	100.00%	100.00%		Medical services.https://www.starowkanzoz.pl/

	47		Tomma Diagnostyka Obrazowa SA		Poznań		09.12.2019		100.00%		100.00%	Medical services.https://tomma.com.pl/

48	Asklepios Diagnostyka sp. z o.o.		Poznań	09.12.2019	100.00%	100.00%		Medical services.

	49		Bonus-Diagnosta sp. z o.o.		Poznań		09.12.2019		100.00%		100.00%	Medical services.

	Consolidated companies - other companies

	50		Powszechne Towarzystwo Emerytalne PZU SA		Warsaw		08.12.1998		100.00%		100.00%	Management of pension funds.
							https://www.pzu.pl/pl/grupa-pzu/spolki/pte-pzu

51	PZU Centrum Operacji SA		Warsaw	30.11.2001	100.00%	100.00%		Auxiliary activity associated with insurance and pension funds.

	52		Towarzystwo Funduszy Inwestycyjnych PZU SA		Warsaw		30.04.1999		100.00%		100.00%	Creation, representing and management of mutual funds.
							https://www.pzu.pl/pl/grupa-pzu/spolki/tfi-pzu

53	PZU Pomoc SA		Warsaw	18.03.2009	100.00%	100.00%		Provision of assistance services.
		https://www.pzu.pl/grupa-pzu/spolki/pzu-pomoc


	54		PZU Finance AB (publ.)		Stockholm		02.06.2014		100.00%		100.00%	Financial services.https://www.pzu.pl/pl/grupa-pzu/spolki/pzu-finance
			(Sweden)

55	PZU Finanse Sp. z o.o.		Warsaw	08.11.2013	100.00%	100.00%		Financial and accounting services.
	56		Tower Inwestycje Sp. z o.o.		Warsaw		27.08.1998		100.00%		100.00%	Development activity, operation and lease of properties.
							https://www.pzu.pl/pl/grupa-pzu/spolki/tower-inwestycje

57	Ogrodowa-Inwestycje sp. z o.o.		Warsaw	15.09.2004	100.00%	100.00%		Buying, operating, renting and selling real estate.
		http://www.ogrodowainwestycje.pl/

	58		Arm Property sp. z o.o.		Krakow		26.11.2014		100.00%		100.00%	Purchase and sale of real estate.
59	Ipsilon sp. z o.o.		Warsaw	02.04.2009	100.00%	100.00%		Provision of assistance services and medical services.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Date of

% of the share capital and % of votes

Registered

obtaining

held directly or indirectly by PZU

No.

Name of the entity

office

control /

Line of business and website

significant

31 March 2020

31 December 2019

influence

Consolidated companies - other companies - continued

PZU Corporate Member Limited

London

28.09.2017

100.00%

Investment activity.

(UK)

Consulting and training services, development of technology innovation

PZU LAB SA

Warsaw

13.09.2011

100.00%

to support technical and procedural security processes and risk

management.

https://www.pzu.pl/pl/grupa-pzu/spolki/pzu-lab

Omicron BIS SA

Warsaw

28.08.2014

100.00%

No business conducted.

LLC SOS Services Ukraine

Kiev (Ukraine)

01.07.2005

100.00%

Assistance services.

PZU CASH SA

Warsaw

15.09.2017

100.00%

Other monetary intermediation

https://www.pzu.pl/grupa-pzu/spolki/pzu-cash-sa

Tulare Investments sp. z o.o.

Warsaw

15.09.2017

100.00%

No business conducted.

Consolidated companies - Armatura Group

Production and sale of radiators and sanitary fittings and administration

Armatura Kraków SA

Krakow

07.10.1999

100.00%

and management of the group.

https://www.kfa.pl/

Aquaform SA

Środa Wlkp.

15.01.2015

100.00%

Production and sale of bathroom accessories and fittings.

http://www.aquaform.com.pl/

Aquaform Badprodukte GmbH in Liquidation

Anhausen

15.01.2015

100.00%

Wholesale trade.

(Germany)

Aquaform Ukraine ТОW

Zhytomyr

15.01.2015

100.00%

Wholesale trade.http://aquaform.org.ua/

(Ukraine)

Aquaform Romania SRL

Prejmer

15.01.2015

100.00%

Wholesale trade.

(Romania)

Consolidated companies - mutual funds

PZU SFIO Universum

Warsaw

15.12.2009

n/a

Investment of funds collected from fund members.

PZU FIZ Dynamiczny in liquidation

Warsaw

27.01.2010

n/a

as above

PZU FIZ Sektora Nieruchomości 4)

Warsaw

01.07.2008

n/a

as above

PZU FIZ Sektora Nieruchomości 2 4)

Warsaw

21.11.2011

n/a

as above

PZU FIZ Aktywów Niepublicznych BIS 1

Warsaw

12.12.2012

n/a

as above

PZU FIZ Aktywów Niepublicznych BIS 2

Warsaw

19.11.2012

n/a

as above

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Date of

% of the share capital and % of votes

Registered

obtaining

held directly or indirectly by PZU

No.

Name of the entity

office

control /

Line of business and website

significant

31 March 2020

31 December 2019

influence

Consolidated companies - mutual funds - continued

PZU FIO Globalny Obligacji Korporacyjnych

Warsaw

30.05.2016

n/a

as above

PZU FIZ Akcji Combo

Warsaw

09.03.2017

n/a

as above

inPZU Inwestycji Ostrożnych

Warsaw

10.04.2018

n/a

as above

inPZU Obligacje Polskie

Warsaw

10.04.2018

n/a

as above

inPZU Akcje Polskie

Warsaw

10.05.2018

n/a

as above

inPZU Akcji Rynków Rozwiniętych

Warsaw

10.05.2018

n/a

as above

inPZU Obligacji Rynków Rozwiniętych

Warsaw

10.05.2018

n/a

as above

inPZU Obligacji Rynków Wschodzących

Warsaw

10.05.2018

n/a

as above

inPZU Goldman Sachs ActiveBeta Akcje Rynków

Warsaw

28.10.2019

n/a

as above

Wschodzących

inPZU Goldman Sachs ActiveBeta Akcje

Warsaw

28.10.2019

n/a

as above

Amerykańskich Dużych Spółek

inPZU Akcje CEE plus

Warsaw

28.10.2019

n/a

as above

Associates

GSU Pomoc Górniczy Klub Ubezpieczonych SA
CPF Management 5)
PayPo sp. z o.o. 6)
Sigma BIS SA

Gliwice	08.06.1999	30.00%	30.00%		Insurance administration. http://gsupomoc.pl/
Tortola, British		07.06.2017		8.01%		8.01%	Consulting and business activity - no business conducted.
Virgin Islands

Warsaw	15.11.2018	6.39%	6.39%		Financial services. https://paypo.pl/

Warsaw		03.10.2019		34.00%		34.00%	Advertising activity.

PZU directly holds a 33.5% equity stake in Pekao Financial Services sp. z o.o. while Pekao holds 66.5%.
On 1 March 2019 the company's liquidation process was opened.
Additional information is presented in item 1.3.1.
The funds PZU FIZ Sektora Nieruchomości and PZU FIZ Sektora Nieruchomości 2 conduct their investment activity through (consolidated) subsidiary companies established under commercial law as special-purpose vehicles whose number in the respective funds was 18 for each fund as at 31 March 2020 and as at 31 December 2019.
Pekao's associate, in which it holds a 40.00% stake. Consequently, the PZU Management Board recognizes that the PZU Group has significant influence over this company.
Alior Bank's associate, in which it holds a 20.00% stake. Consequently, the PZU Management Board recognizes that the PZU Group has significant influence over this company.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

1.3 Changes in the scope of consolidation and structure of the PZU Group

Detailed accounting rules applicable to the recognition of acquisition transactions are presented in the consolidated financial statements for 2019.

1.3.1. Acquisitions of companies

On 19 February 2020, Alior Bank acquired 100 shares worth PLN 50 each constituting a 100% stake in Harberton sp. z o.o. from Blackstone sp. z o.o. Holdings sp.k.

1.3.2. Transactions under joint control

On 2 January 2020, the merger of Centrum Medyczne Medica sp. z o.o. with Specjalistyczna Przychodnia Przemysłowa "PROF- MED" sp. z o.o. was registered in the Register of Commercial Undertakings. As a result of the merger, Centrum Medyczne Medica sp. z o.o. as the surviving entity assumed all the rights and obligations of Specjalistyczna Przychodnia Przemysłowa "PROF-MED" sp. z o.o.

The combination had no effect on the consolidated financial statements.

1.4 Non-controlling interest

The table below presents subsidiaries with certain non-controlling interest (at present or in the past):

Name of the entity	31 March 2020	31 December 2019

Pekao 1)	79.98%	79.98%
Alior Bank 2)	68.07%	68.07%
Przedsiębiorstwo Usług Medycznych PROELMED sp. z o.o.	43.00%	43.00%
Centrum Medyczne Gamma sp. z o.o.	39.54%	39.54%

Sanatorium Uzdrowiskowe "Krystynka" sp. z o.o.	0.91%	0.91%
PZU LT GD	0.66%	0.66%

AAS Balta	0.01%	0.01%

As a result, PZU also holds non-controlling interests in Pekao's subsidiaries listed in the table in section 1.2.
As a result, PZU also holds non-controlling interests in Alior Bank's subsidiaries listed in the table in section 1.2.

Carrying amount of non-controlling interests	31 March 2020	31 December 2019

Pekao Group	18,961	18,683
Alior Bank Group	4,476	4,430
Other	6	6
Total	23,443	23,119

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Presented below is condensed financial information for the Pekao Group and the Alior Bank Group included in the consolidated financial statements (without consolidation eliminations). The data of the Pekao Group and the Alior Bank Group incorporate the effect of adjustments resulting from the measurement of assets and liabilities to fair value as at the date control was acquired and their subsequent amortization over time.

Assets		Pekao Group	Alior Bank Group

	31 March 2020		31 December 2019	31 March 2020		31 December 2019


Goodwill	692	692		-	-
	Intangible assets			1,711		1,683		638		644
Other assets	102	45		60	35
	Property, plant and equipment			2,100		2,112		742		764
Entities measured by the equity method	-	-		5	10
	Loan receivables from clients			142,829		139,464		55,954		55,368
Financial derivatives	5,941	2,457		803	508

	Investment financial assets			50,121		48,338		14,269		15,996
	Measured at amortized cost	21,058	15,743		5,025	5,387

	Measured at fair value through other			27,752		31,167		9,123		10,438
	comprehensive income

	Measured at fair value through profit or loss	1,311	1,428		121	171
	Deferred tax assets			1,205		1,087		1,156		1,178
Receivables	2,457	1,956		697	667

	Cash and cash equivalents			10,138		5,463		1,943		1,319
Assets held for sale	16	16		-	-

	Total assets			217,312		203,313		76,267		76,489
	Equity and liabilities			Pekao Group		Alior Bank Group


			31 March 2020		31 December 2019		31 March 2020		31 December 2019


	Equity

	Equity attributable to equity holders of the Parent		23,707	23,360		6,576	6,508
	Share capital		262	262		1,306	1,306
	Other capital		20,706	20,510		5,628	5,637
	Retained earnings		2,739	2,588		(358)	(435)
	Non-controlling interest		12	12		-	-
	Total equity		23,719	23,372		6,576	6,508

	Liabilities

	Subordinated liabilities		2,788	2,764		1,804	1,794
	Liabilities on the issue of own debt securities		5,054	6,322		2,816	2,951

	Liabilities to banks		6,998	6,097		555	437
	Liabilities to clients under deposits		166,133	156,688		62,165	62,433

	Derivatives		6,118	2,649		477	369
	Other liabilities		5,503	4,576		1,596	1,618

	Provisions for employee benefits		401	401		29	29
	Other provisions		569	414		248	349
	Deferred tax liability		29	30		1	1
	Total liabilities		193,593	179,941		69,691	69,981
	Total equity and liabilities		217,312	203,313		76,267	76,489

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

							Elimination of		Elimination of	PZU Group
Consolidated profit and loss account		PZU Group		Elimination of				without
for the period from 1 January to 31 March 2020			Pekao's data		Alior Bank's		consolidation		Pekao and
				data		adjustments
									Alior Bank

	Gross written premiums		6,097		-		-		8	6,105
Reinsurers' share in gross written premium	(156)	-	-	-	(156)
	Net written premiums		5,941		-		-		8	5,949
Movement in net provision for unearned premiums	(179)	-	-	(3)	(182)

	Net earned premium		5,762		-		-		5	5,767

	Revenue from commissions and fees		1,019		(710)		(265)		30	74
Interest income calculated using the effective interest rate	2,996	(1,681)	(945)	11	381

	Other net investment income		-		(27)		144		2	119
Result on derecognition of financial instruments and	75	(48)	(30)	-	(3)
investments

	Movement in allowances for expected credit losses and		(660)		353		297		-	(10)
	impairment losses on financial instruments

Net movement in fair value of assets and liabilities measured	(555)	(13)	(159)	-	(727)
at fair value

	Other operating income		320		(42)		(50)		14	242

	Claims, benefits and movement in technical provisions		(3,491)		-		-		(1)	(3,492)
Reinsurers' share in claims, benefits and movement in	210	-	-	-	210
technical provisions

	Net insurance claims and benefits		(3,281)		-		-		(1)	(3,282)
Fee and commission expenses	(235)	108	128	(1)	-
	Interest expenses		(485)		287		175		(4)	(27)
Acquisition expenses	(835)	-	-	(23)	(858)
	Administrative expenses		(1,679)		840		391		(7)	(455)
Other operating expenses	(1,786)	644	189	490 1)	(463)
	Operating profit (loss)		656		(289)		(125)		516	758
Share of the net financial results of entities measured by the	(1)	-	-	-	(1)
equity method

	Profit (loss) before tax		655		(289)		(125)		516	757
Income tax	(366)	138	48	-	(180)
	Net profit (loss)		289		(151)		(77)		516	577

including impairment loss on goodwill (in the amount of PLN 516 million) arising from the acquisition of Alior Bank. More information on this matter is presented in section 8.16.1.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Consolidated profit and loss account						Elimination of		Elimination of		PZU Group
	PZU Group		Elimination of				without
for the period from 1 January to 31 March 2019			Pekao's data		Alior Bank's		consolidation		Pekao and
(restated)					data		adjustments
							Alior Bank

	Gross written premiums		5,901		-		-		2		5,903
Reinsurers' share in gross written premium	(102)	-	-	-	(102)
	Net written premiums		5,799		-		-		2		5,801
Movement in net provision for unearned premiums	(207)	-	-	2	(205)

	Net earned premium		5,592		-		-		4		5,596

	Revenue from commissions and fees		961		(668)		(263)		22		52
Interest income calculated using the effective interest rate	2,859	(1,595)	(1,000)	6	270

	Other net investment income		194		(53)		(92)		2		51
Result on derecognition of financial instruments and	53	(53)	(24)	(2)	(26)
investments

	Movement in allowances for expected credit losses and		(342)		113		280		-		51
	impairment losses on financial instruments

Net movement in fair value of assets and liabilities measured	254	11	59	2	326
at fair value

	Other operating income		274		(38)		(38)		10		208

	Claims, benefits and movement in technical provisions		(4,111)		-		-		-		(4,111)
Reinsurers' share in claims, benefits and movement in	153	-	-	-	153
technical provisions

	Net insurance claims and benefits		(3,958)		-		-		-		(3,958)
Fee and commission expenses	(174)	84	90	-	-
	Interest expenses		(525)		295		193		(4)		(41)
Acquisition expenses	(793)	-	-	(20)	(813)
	Administrative expenses		(1,620)		823		391		(9)		(415)
Other operating expenses	(1,286)	654	211	(11)	(432)

	Operating profit (loss)		1,489		(427)		(193)		-		869
Share of the net financial results of entities measured by the	(2)	-	-	-	(2)
equity method

	Profit (loss) before tax		1,487		(427)		(193)		-		867
Income tax	(475)	191	83	-	(201)
	Net profit (loss)		1,012		(236)		(110)		-		666

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

		Pekao Group		Alior Bank Group
Statement of comprehensive income		1 January -		1 January -		1 January -		1 January -
		31 March 2019
		31 March 2020			31 March 2020		31 March 2019
			(restated)

Net profit	151	236	77	110
Other comprehensive income		197		41		(10)		(48)
Subject to subsequent transfer to profit or loss	206	40	(33)	(59)
Valuation of debt instruments		(120)		(24)		(131)		(59)
Measurement of loan receivables from clients	(12)	9	-	-

Foreign exchange translation differences		-		-		(1)		-
Cash flow hedging	338	55	99	-

Not to be reclassified to profit or loss in the future		(9)		1		23		11
Valuation of equity instruments	(9)	1	23	11

Total net comprehensive income		348		277		67		62

		Pekao Group		Alior Bank Group
Cash flow statement		1 January -		1 January -		1 January -		1 January -
		31 March 2020		31 March 2019		31 March 2020		31 March 2019

Net cash flows from operating activities	8,606	452	(820)	(390)

Net cash flows from investing activities		(1,792)		(5,118)		1,591		(33)
Net cash flows from financing activities	(2,215)	(499)	(186)	(13)
Total net cash flows		4,599		(5,165)		585		(436)

Neither Pekao nor Alior Bank paid out any dividends in the period from 1 January to 31 March 2020 or from 1 January to 31 March 2019.

2. Shareholder structure

As at the date of conveying this periodic report, PZU's shareholder structure, taking into consideration the shareholders with at least 5% of the votes at the PZU Shareholder Meeting is as follows:

	No.		Shareholder's name	Number of shares and votes at		Percentage held in the share capital and in
			the Shareholder Meeting 1)	the total number of votes at the
					Shareholder Meeting


	1		State Treasury	295,217,300		34.1875%
2	Other shareholders	568,305,700	65.8125%
	Total			863,523,000		100.00%

According to the Current Report No. 22/2019 on the list of shareholders holding at least 5% of the number of votes at the PZU Extraordinary Shareholder Meeting that took place on 6 September 2019.

2.1 Changes in the ownership structure of significant shareholdings in the issuer's company

In the period from 1 January 2020 to the date of conveying this periodic report, no significant changes have taken place in the ownership structure of PZU shares.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

2.2 Shares or rights to shares held by persons managing or supervising PZU

As at the date of conveying this periodic report and as at the date of conveying the annual report for 2019 (i.e. 12 March 2020), Tomasz Kulik, a PZU Management Board Member, held 2,847 PZU shares. Other members of the Management Board, Supervisory Board or the Directors of the PZU Group held no PZU shares or rights to PZU shares as at the date of conveying this periodic report and as at the date of conveying the annual report for 2019.

3. Composition of the Management Board, Supervisory Board and PZU Group Directors

3.1 Composition of the parent company's Management Board

From 1 January 2020, the PZU Management Board consisted of the following persons:

Paweł Surówka - President of the PZU Management Board;
Aleksandra Agatowska - Member of the PZU Management Board;
Adam Brzozowski - Member of the PZU Management Board;
Marcin Eckert - Member of the PZU Management Board;
Elżbieta Häuser-Schöneich - Member of the PZU Management Board;
Tomasz Kulik - Member of the PZU Management Board;
Maciej Rapkiewicz - Member of the PZU Management Board;
Małgorzata Sadurska - Member of the PZU Management Board.

On 19 February 2020, Aleksandra Agatowska tendered her resignation from being a PZU Management Board Member as of the same date.

On 12 March 2020, Paweł Surówka tendered his resignation in consultation with the Supervisory Board from serving in the capacity of President of the PZU SA Management Board as of the same date.

On 12 March 2020, the PZU Supervisory Board adopted a resolution to appoint Beata Kozłowska-Chyła to the PZU SA Management Board and entrust her with discharging the function of the President of the PZU SA Management Board provided that she obtains the consent of the Polish Financial Supervision Authority (KNF). Until the consent of the KNF referred to above is obtained, Beata Kozłowska-Chyła was entrusted with being the acting President of the Management Board to the extent permissible by the pertinent regulations. The resolution came into force on the date of its adoption. This appointment took place on 12 March 2020 for a joint term of office spanning the three full financial years from 2020 to 2022.

On 12 March 2020, the PZU Supervisory Board adopted a resolution to appoint Małgorzata Kot to the PZU Management Board and entrust her with discharging the function of a PZU SA Management Board Member. The resolution came into effect at the moment it was adopted and the appointment was to be for a joint term of office spanning the three full financial years from 2020 to 2022, effective as of 1 June 2020. On 15 April 2020, the PZU Supervisory Board adopted a resolution repealing the resolution of 12 March 2020 on the appointment of Małgorzata Kot to the PZU Management Board.

On 15 April 2020, the PZU Supervisory Board adopted a resolution to appoint Ernest Bejda to the PZU Management Board and entrust him with discharging the function of being a PZU SA Management Board Member. The resolution came into force on the date of its adoption. This appointment took place with effect as of 4 May 2020 for a joint term of office spanning the three full financial years from 2020 to 2022.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

From 4 May 2020 to the date of conveying this periodic report, the PZU Management Board consisted of the following persons:

Beata Kozłowska-Chyła - acting President of the PZU Management Board;
Ernest Bejda - Member of the PZU Management Board;
Adam Brzozowski - Member of the PZU Management Board;
Marcin Eckert - Member of the PZU Management Board;
Elżbieta Häuser-Schöneich - Member of the PZU Management Board;
Tomasz Kulik - Member of the PZU Management Board;
Maciej Rapkiewicz - Member of the PZU Management Board;
Małgorzata Sadurska - Member of the PZU Management Board.

3.2 Composition of the parent company's Supervisory Board

From 1 January 2020, the PZU Supervisory Board consisted of the following persons:

Maciej Łopiński - Supervisory Board Chairman;
Paweł Górecki - Supervisory Board Deputy Chairman;
Alojzy Nowak - Supervisory Board Secretary;
Marcin Chludziński - Supervisory Board Member;
Agata Górnicka - Supervisory Board Member;
Robert Jastrzębski - Supervisory Board Member;
Tomasz Kuczur - Supervisory Board Member;
Elżbieta Mączyńska-Ziemacka - Supervisory Board Member;
Krzysztof Opolski - Supervisory Board Member;
Robert Śnitko - Supervisory Board Member;
Maciej Zaborowski - Supervisory Board Member.

On 21 April 2020, Alojzy Nowak tendered his resignation from being a PZU Supervisory Board Member as of 21 April 2020.

On 26 May 2020, the Shareholder Meeting of PZU appointed Józef Wierzbowski to the PZU Supervisory Board. The resolution came into force upon its adoption.

From 26 May 2020 to the date of conveying this periodic report, the PZU Supervisory Board consisted of the following persons:

Maciej Łopiński - Supervisory Board Chairman;
Paweł Górecki - Supervisory Board Deputy Chairman;
Marcin Chludziński - Supervisory Board Member;
Agata Górnicka - Supervisory Board Member;
Robert Jastrzębski - Supervisory Board Member;
Tomasz Kuczur - Supervisory Board Member;
Elżbieta Mączyńska-Ziemacka - Supervisory Board Member;
Krzysztof Opolski - Supervisory Board Member;
Robert Śnitko - Supervisory Board Member;
Józef Wierzbowski - Supervisory Board Member;
Maciej Zaborowski - Supervisory Board Member.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

3.3 PZU Group Directors

Apart from Management Board Members, key managers in the PZU Group also comprise PZU Group Directors. From 1 January 2020, the following persons were PZU Group Directors:

Adam Brzozowski (PZU Życie);
Bartłomiej Litwińczuk (PZU);
Dorota Macieja (PZU);
Roman Pałac (PZU).

Effective as of 13 March 2020, Roman Pałac was dismissed from the position of the PZU Group Director.

In 2020, the following were appointed to the position of PZU Group Director: Aleksandra Agatowska (as of 20 February 2020), Małgorzata Kot (as of 16 April 2020) and Ernest Bejda (as of 4 May 2020).

As at the date of conveying this periodic report the following persons were PZU Group Directors:

Aleksandra Agatowska (PZU);
Ernest Bejda (PZU Życie);
Adam Brzozowski (PZU Życie);
Małgorzata Kot (PZU);
Bartłomiej Litwińczuk (PZU);
Dorota Macieja (PZU).

4. Key accounting policies, key estimates and judgments

Detailed accounting policies and critical estimates and judgments are presented in the consolidated financial statements of the PZU Group for 2019.

The accounting policies and calculation methods used in these condensed interim financial statements are the same as those used in the consolidated financial statements of the PZU Group for 2019, except for the changes described below.

By preparing the condensed interim financial statements, the PZU Group took into account the economic conditions (such as market prices, interest rates or exchange rates) in effect as at the balance sheet date.

4.1 Amendments to the applied IFRS

4.1.1. Standards, interpretations and amended standards effective from 1 January 2020

The following changes in standards were applied to the consolidated financial statements.

Standard/interpretation		Approving		Commentary
	regulation


				The amended conceptual assumptions contain several new concepts pertaining to
				measurement, they incorporate the updated definitions and criteria for recognizing assets
				and liabilities and the guidelines for reporting financial results. Moreover, they contain
Amendments to the		2019/2075		explanations of various significant areas, such as the role of management, prudence and
framework			measurement uncertainties in financial statements.

				The amendments had no significant influence on the PZU Group's consolidated financial
				statements.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

	Standard/interpretation		Approving		Commentary
		regulation


					According to the new definition, information is material if one may justifiably expect that if it
Amendments to IAS 1 and				is overlooked, distorted or concealed this may affect the decisions made by the main users of
			financial statements on the basis of these financial statements.
IAS 8 - definition of	2019/2104

materiality				The change will not affect to a material extent the PZU Group's consolidated financial

					statements.

					This amendment requires the preparation of qualitative and quantitative disclosures to
					enable users of financial statements to understand how the entity's hedging relationships are
					affected by uncertainty arising from the benchmark interest rate reform. The amendments
	Amendments to IFRS 9				introduce temporary derogation from specified hedge accounting requirements so that the
				reform of interest rate indices does not cause termination of hedging relationships. The key
	and IFRS 7 - reform of the		2020/34
			exceptions apply to the requirements that the cash flows are "highly probable", risk
	interest rate benchmarks
				components, prospective assessments, retrospective effectiveness assessments and

					reclassification of the cash flow hedge provision.
					The change did not have a material effect on the consolidated financial statements.
					The amendments aim to state precisely the difference between the acquisition of a business
Amendment to IFRS 3 -	2020/551		and an asset acquisition.
Business combinations

					The amendments did not affect the PZU Group's consolidated financial statements.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

4.1.2. Standards, interpretations and amended standards not yet effective

Absence of standards and interpretations approved by the regulation of the European Commission
Not approved by the European Commission:

Name of standard/	Date of issue by IASB	Effective date	Commentary
interpretation	(according to IASB)

The purpose of the standard is to establish the uniform accounting policy for all types of insurance contracts, including the reinsurance contracts held by the insurer. Introduction of this unified standard should ensure comparability of financial reportsbetween different entities, states and capital markets.

The new standard defines insurance contract as a contract under which one entity accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. The scope of the standard does not cover, among others, investment contracts, product warranties, loan guarantees, catastrophe bonds and so-called weather derivatives (contracts requiring payment based on the climatic, geological factor or another physicalvariable that is not specific to the party to the contract).

The standard introduces a definition of contract boundary, defining its beginning as the beginning of coverage, the date when first premium becomes due, the moment when facts and circumstances indicate that the contract belongs to the group of onerous contracts - whichever is earliest. The end of the contract boundary occurs when the insurer has the right or practical ability to reassess the risk for a particular policyholder or a policy group, and the premium measurement does not cover the risk related tofuture periods.

In accordance with IFRS 17, contracts will be measured by one of the following methods:

			∙	General Measurement Model, GMM - the basic measurement model, wherein the total value of the insurance liability is
IFRS 17 - Insurance contracts	18 May 2017	1 January 2023		calculated as the sum of:
				o	discounted value of the best estimate of future cash flows - expected (probability-weighted) cash flows from premiums,
					claims, benefits, acquisition expenses and costs,
				o	risk adjustment, RA - individual estimate of the uncertainty related to the quantity and time of the future cash flows,
					and
				o	contractual service margin (CSM) - representing an estimate of future profits recognized during the policy term. The
					CSM value is sensitive to changes in estimates of cash flows, resulting e.g. from changed non-economic assumptions.
					CSM cannot be a negative value - any losses on the contract shall be recognized immediately in the profit and loss
					account;
			∙	premium allocation approach, PAA - a simplified model which can be applied to measurement of insurance contracts with the
				coverage period below 1 year or where its application does not lead to significant changes in relation to GMM. In this model,
				liability for remaining coverage is analogous to the provision for unearned premiums mechanism, without separate
				presentation of RA and CSM, while the liability for incurred claims is measured using the GMM (without calculating CSM).
			∙	variable fee approach, VFA - model used for insurance contracts with direct profit sharing. The liability value is calculated in
				the same manner as in the GMM, the CSM value is additionally sensitive to changes in economic assumptions.

IFRS 17 provides for separate recognition of reinsurance contracts from reinsured insurance contracts. The cedent shall measure

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Name of standard/	Date of issue by IASB	Effective date		Commentary
interpretation	(according to IASB)

			reinsurance contracts by the modified GMM method or, if possible, by the PAA method. Modifications of the GMM method arise
			above all from the fact that reinsurance contracts are usually assets, not liabilities, and the cedent pays a remuneration to the
			reinsurer rather than deriving profits from the contract. Modifications are also supposed to reduce discrepancies arising from
			separate recognition of the reinsurance contract from reinsured insurance contracts.
			In the case of reinsurance contracts, both the profit and the loss calculated as at the contract recognition are recognized in the
			statement of financial position and settled through the reinsurance coverage period. The assumptions for reinsurance contract
			measurement shall be consistent with those used for reinsured insurance contract measurement. In addition, measurement shall
			take into account the risk that the reinsurer fails to fulfill its obligations.
			In mid-2018, the PZU Group formally launched project work to implement a standard in all PZU Group insurance companies. As part
			of the project, PZU Group works, among others, on:
			∙	analyzing the gap in existing IT processes, tools and systems;
			∙	determining new components necessary to be implemented in processes and areas which will be significantly affected by the
				implementation of IFRS 17;
			∙	analyzing the current product offer in terms of segmentation and principles of measurement in accordance with IFRS 17;
			∙	work related to the selection of a system to support the reporting process in accordance with the requirements of IFRS 17.
			As at the date of conveying these consolidated financial statements, the European Commission has not endorsed the standard and
			the IASB is continuing its efforts aimed at giving the standard its final shape.
			The PZU Group is carrying out project work related to the implementation of the standard. At the present stage of the IFRS 17
			implementation project, it is impossible to estimate the effect of application of IFRS 17 on the PZU Group's comprehensive income
			and equity.
			The amendment specifies that, when determining the right to defer settlement of a liability the conditions in place at the end of the
Amendment to IAS 1 -			reporting period should be taken into account and that the classification is unaffected by intentions or expectations to exercise the
classification of liabilities as	23 January 2020	1 January 2023	right to defer settlement of a liability.
current or non-current
			The amendments did not affect the PZU Group's consolidated financial statements.

In summary, in the opinion of the PZU Group, the introduction of the above standards and interpretations (except for IFRS 17) will have no material effect on the accounting principles applied by the PZU Group.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

4.2 Explanation of the difference between the 2019 annual consolidated financial statements and these consolidated financial statements

To reflect better the economic nature of transactions, the presentation changes described in subsequent paragraphs have been made.

4.2.1. Change of presentation of interest income calculated using the effective interest rate

The interest income calculated using the effective interest rate, which has so far been presented in "Net investment income", was allocated to a separate item in the consolidated profit and loss account.

4.2.2. Change of presentation of provisions for guarantees and sureties given

Recognition and reversal of a provision for guarantees and sureties given, which were presented separately in other operating expenses and other operating income, respectively, are presented in the net amount in the "Movement in allowances for expected credit losses and impairment losses on financial instruments" item.

4.2.3. Change of presentation of measurement of loan receivables from clients measured at fair value through other comprehensive income

The valuation of loans measured at fair value through other comprehensive income, which was presented in "Valuation of debt instruments measured at fair value through other comprehensive income" in the 2019 financial statements was transferred to a separate item of other comprehensive income.

4.2.4. Change of presentation of financial liabilities

Subordinated liabilities, liabilities on the issue of own debt securities, liabilities to banks, liabilities to clients under deposits and the negative valuation of derivatives were presented in the "Financial liabilities" item in the 2019 consolidated financial statements. In order to increase the usefulness of the accounts, in the condensed interim consolidated financial statements they are presented as separate items of the statement of financial position.

4.2.5. Change of presentation of expenditures on leases

Expenditures on leases were presented in cash flows from financing activities, in the same way as in the 2019 consolidated financial statements, rather than in investing activities.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

4.2.6. Impact exerted by the differences on the consolidated financial statements

The following tables present the impact of the aforementioned changes on the individual items of the consolidated financial statements.

			1 January -					1 January -
Consolidated profit and loss account		31 March 2019		Adjustment			31 March 2019
			(historical)					(restated)
	Interest income calculated using the effective interest rate		n/a		2,859	1)		2,859
Other net investment income		n/a	194	1)		194
	Net investment income		3,053		(3,053)	1)		n/a
Movement in allowances for expected credit losses and impairment	(339)	(3)	2)		(342)
losses on financial instruments


	Other operating income		369		(95)	2)		274
Other operating expenses	(1,384)	98	2)		(1,286)
	Net profit, including:		1,012			-		1,012
- profit attributable to the equity holders of the Parent Company	747			-		747
	- profit (loss) attributed to holders of non-controlling interest		265			-		265
1) Change described in item 4.2.1.
2) Change described in section 4.2.2.
			1 January -					1 January -

Consolidated statement of comprehensive income		31 March 2019		Adjustment			31 March 2019
			(historical)					(restated)
	Other comprehensive income		123			-		123
	Subject to subsequent transfer to profit or loss	54			-		54
	Valuation of debt instruments		(13)		(9)	3)		(22)
	Measurement of loan receivables from clients		n/a	9	3)		9

	Total net comprehensive income		1,135			-		1,135
3) Change described in section 4.2.3.
	Equity and liabilities		31 December 2019		Adjustment			31 December 2019

		(historical)				(restated)


	Total equity		39,288			-		39,288

	Liabilities
	Technical provisions	47,329			-	47,329

	Subordinated liabilities		n/a		6,700	4)		6,700
	Liabilities on the issue of own debt securities		n/a		9,273	4)	9,273
	Liabilities to banks		n/a		6,604	4)		6,604
	Liabilities to clients under deposits		n/a		218,588	4)	218,588
	Derivatives		n/a		3,018	4)		3,018
	Other liabilities	8,069		2,307	4)	10,376
	Provisions for employee benefits		534			-		534
	Other provisions	867			-	867

	Deferred tax liability		734			-		734
	Financial liabilities	246,490		(246,490)	4)		n/a

	Liabilities related directly to assets classified as held for sale		29			-		29
	Total liabilities	304,052			-	304,052

	Total equity and liabilities		343,340			-		343,340
4) Change described in section 4.2.4.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

	1 January -		1 January -
Consolidated cash flow statement	31 March 2019	Adjustment	31 March 2019
	(historical)		(restated)
Cash flow from investing activities	(7,351)	62	(7,289)
Expenditures	(233,173)	62	(233,111)
- expenditures on leases	(62)	62 5)	n/a
Cash flows from financing activities	(411)	(62)	(473)

Expenditures	(38,162)	(62)	(38,224)
- expenditures on leases	n/a	(62) 5)	(62)
Total net cash flows	(6,783)	-	(6,783)
4) Change described in section 4.2.5.

5. Information about major events that materially influence the structure of financial statement items

In the 3-month period ended 31 March 2020, the following material events caused significant changes in the structure of financial statement items:

As a result of the performed impairment tests, the PZU Group decided to recognize an impairment loss on goodwill arising from the acquisition of Alior Bank in the amount of PLN 516 million (additional information is presented in section 8.16.1);
worse conditions on the financial market due to the COVID-19 pandemic. More information on this matter is presented in section 16.3.

6. Corrections of errors from previous years

During the 3-month period from 1 January to 31 March 2020, no corrections of errors from previous years were made.

7. Material events after the end of the reporting period

7.1.1. COVID-19 pandemic

The COVID-19 pandemic is a significant event, which began during the reporting period and which continues to affect the financial standing of the PZU Group after the reporting period. More information on this matter is presented in section 16.3.

7.1.2. Approval of the base prospectus for the Alior Bank bond offering program

4 May 2020, KNF approved the Alior Bank's base prospectus prepared in connection with:

the program offering in the territory of Poland unsecured bearer bonds with nominal value of at least PLN 100 each and the total maximum nominal value up to PLN 1,500 million, established by Alior Bank under the long-term Alior Bank bond issue program with the maximum nominal value up to PLN 5,000 million; and
the intention to apply for admission and introduction of respective bond series into trading on the regulated market for debt securities (main market or parallel market) operated by Giełda Papierów Wartościowych w Warszawie SA (Warsaw
Stock Exchange) or the regulated market for debt securities operated by BondSpot SA.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8. Supplementary notes to the condensed interim consolidated financial statements

8.1	Gross written premiums
Gross written premiums			1 January -		1 January -

		31 March 2020		31 March 2019

	Gross written premiums in non-life insurance			3,881		3,809
	In direct insurance		3,880	3,803

	In indirect insurance			1		6
Gross written premiums in life insurance		2,216	2,092

	Individual insurance premiums			457		359
	Individually continued insurance premiums		511	505

	Group insurance premiums			1,248		1,228
Total gross written premiums		6,097	5,901

Gross written premium in direct non-life insurance		1 January -		1 January -
(by accounting classes prescribed by section II of the attachment to the Insurance
	31 March 2020		31 March 2019
Activity Act)

	Accident and sickness insurance (group 1 and 2)			237		182
Motor third party liability insurance (group 10)		1,390	1,435
	Other motor insurance (group 3)			974		1,005
Marine, aviation and transport insurance (groups 4, 5, 6, 7)		38	20

	Insurance against fire and other property damage (groups 8 and 9)			783		740
TPL insurance (groups 11, 12, 13)		240	238

	Credit and suretyship insurance (groups 14, 15)			20		20
Assistance (group 18)		151	126

	Legal protection (group 17)			3		3
Other (group 16)		44	34
	Total				3,880		3,803
8.2	Revenue from commissions and fees
Revenue from commissions and fees		1 January -		1 January -

	31 March 2020		31 March 2019


	Banking activity			841		803
	Margin on foreign exchange transactions with clients		183	184

	Brokerage fees			33		26
	Fiduciary activity		14	15
	Payment card and credit card services			231		207
	Fees on account of insurance intermediacy activities		17	19
	Credits and loans			91		94
	Bank account-related services		104	101

	Transfers				66		75
	Cash operations		21	23

	Receivables purchased			13		10
	Guarantees, letters of credit, collections, commitment letters		19	20

	Commissions on leasing activity			16		-
	Other commission		33	29

	Revenue and payments received from funds and mutual fund companies			130		124
Pension insurance		47	34
	Other				1		-
Total revenue from commissions and fees		1,019	961
		38

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.3 Interest income calculated using the effective interest rate

Interest income calculated using the effective interest rate		1 January -		1 January -
	31 March 2020		31 March 2019


Loan receivables from clients		2,240		2,233
Debt securities measured at fair value through other comprehensive income	269	206

Debt securities measured at amortized cost		321		265
Buy-sell-back transactions	18	15

Term deposits with credit institutions		19		28
Loans	83	66
Receivables purchased		34		34
Receivables	-	1
Cash and cash equivalents		12		11
Total interest income calculated using the effective interest rate	2,996	2,859

8.4	Other net investment income
Other net investment income		1 January -		1 January -

	31 March 2020		31 March 2019

Hedge derivatives		69		59
Dividend income, including:	1	1

Investment financial assets measured at fair value through profit or loss		1		1
Foreign exchange differences	(100)	96

Income on investment property		55		65
Investment property maintenance expenses	(22)	(27)

Investment activity expenses		(7)		(6)
Other		4	6

Total other net investment income		-		194

8.5 Result on derecognition of financial instruments and investments

Result on derecognition of financial instruments and investments		1 January -		1 January -
	31 March 2020		31 March 2019


Investment financial assets		69		90
Debt instruments measured at fair value through other comprehensive income	72	30

Financial instruments measured at fair value through profit or loss		(34)		51
Equity instruments	(22)	4
Participation units and investment certificates		(50)		20
Debt instruments	38	27
Instruments measured at amortized cost		31		9
Loan receivables from clients measured at amortized cost	3	7
Derivatives		45		2
Short sale	1	(2)

Receivables		(43)		(44)
Total result on derecognition of financial instruments and investments	75	53

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.6 Movement in allowances for expected credit losses and impairment losses on financial instruments

Movement in allowances for expected credit losses and impairment losses on financial		1 January -		1 January -
		31 March 2019
instruments		31 March 2020
		(restated)

	Investment financial assets		(34)		41
	Debt instruments measured at fair value through other comprehensive income	(20)	7

	Instruments measured at amortized cost		(14)		34
	- debt instruments	(11)	4

	- loans		(3)		30
Loan receivables from clients	(562)	(397)

	Measured at amortized cost		(560)		(377)
	Measured at fair value through other comprehensive income	(2)	(20)

	Guarantees and sureties given		(55)		(3)
Receivables	(9)	17
	Total movement in allowances for expected credit losses and impairment losses on		(660)		(342)
	financial instruments

8.7 Net movement in fair value of assets and liabilities measured at fair value

Net movement in fair value of assets and liabilities measured at fair value		1 January -		1 January -
	31 March 2020		31 March 2019


	Investment financial instruments measured at fair value through profit or loss		(275)		373
	Equity instruments	(153)	96

	Debt securities		249		137
	Participation units and investment certificates	(371)	140

	Derivatives		(303)		(94)
Measurement of liabilities to members of consolidated mutual funds	10	(3)
	Investment contracts for the client's account and risk (unit-linked)		30		(5)
Investment property	(20)	(12)
	Loan receivables from clients		3		(5)
Total net movement in fair value of assets and liabilities measured at fair value	(555)	254

8.8	Other operating income
			1 January -		1 January -

Other operating income			31 March 2019
	31 March 2020
				(restated)


Revenues on the sales of products, merchandise and services by non-insurance companies		169		145
Revenues from direct claims handling on behalf of other insurance companies	54	51
Reimbursement of the costs of pursuit of claims		11		11
Reinsurance commissions and profit participation	14	15
Indemnity received		2		8
Interest for late payment of amounts due under direct insurance and outward reinsurance	19	7
Other			51		37
Total other operating income	320	274

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.9 Claims, benefits and movement in technical provisions

Claims, benefits and movement in technical provisions		1 January -		1 January -
	31 March 2020		31 March 2019


Claims, benefits and movement in technical provisions		3,491		4,111
In non-life insurance	2,361	2,323

- claims and benefits		1,951		1,841
- movement in technical provisions	196	282

- claims handling expenses		214		200
In life insurance	1,130	1,788
- claims and benefits		1,640		1,616
- movement in technical provisions	(545)	139
- claims handling expenses		35		33
Reinsurers' share in claims, benefits and movement in technical provisions	(210)	(153)

In non-life insurance		(210)		(153)
Total net insurance claims and benefits	3,281	3,958

8.10	Fee and commission expenses
Fee and commission expenses		1 January -		1 January -

	31 March 2020		31 March 2019


Costs of card and ATM transactions, including card issue costs		151		100
Commissions on acquisition of banking clients	24	19

Fees for the provision of ATMs		12		10
Costs of awards to banking clients	5	4
Costs of bank transfers and remittances		11		10
Additional services attached to banking products	6	6
Brokerage fees		4		4
Costs of administration of bank accounts	1	1
Costs of banknote operations		4		4
Fiduciary activity expenses	4	5

Other commission		13		11
Total fee and commission expenses	235	174

8.11	Interest expenses
Interest expenses		1 January -			1 January -

	31 March 2020			31 March 2019


	Term deposits			200		249
Current deposits			138	133

	Own debt securities issued			102		109
Hedge derivatives			2	1

	Loans				2		2
Repurchase transactions			11	10
	Bank loans contracted by PZU Group companies			12		7
Leasing				10	7
	Other				8		7
Total interest expense			485	525

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.12 Administrative, acquisition and claims handling expenses, by type

Administrative, acquisition and claims handling expenses, by type		1 January -		1 January -
	31 March 2020		31 March 2019


Consumption of materials and energy		47		45
Third party services	384	384

Taxes and fees		32		28
Employee expenses	1,249	1,174

Depreciation of property, plant and equipment		153		154
Amortization of intangible assets	93	94
Other, including:		821		798
- commissions in insurance activities	641	622
- advertising		48		62
- remuneration of group insurance administrators in work establishments	51	51

- other		81		63
Movement in deferred acquisition expenses	(16)	(31)

Total administrative, acquisition and claims handling expenses		2,763		2,646

8.13	Other operating expenses
				1 January -		1 January -

Other operating expenses			31 March 2019
	31 March 2020
					(restated)

	Impairment loss on goodwill arising from the acquisition of Alior Bank 1)		516		-
Levy on financial institutions	291	285
	Expenses of the core business of non-insurance and non-banking companies		215		170
Direct claims handling expenses on behalf of other insurance undertakings	56	53

	Compulsory payments to insurance market institutions and banking market institutions		53		47
Bank Guarantee Fund	339	515

	Insurance Indemnity Fund		16		17
Fee to the National Fire Brigade Headquarters and Association of Voluntary Fire Brigades	16	18

	Expenditures for prevention activity		14		13
Establishment of provisions	148	10
	Amortization of intangible assets purchased in company acquisition transactions		44		58
Recognition of impairment losses for non-financial assets	6	2
	Donations			26		23
Late interest, penalties, indemnities	5	5
	Costs of pursuit of claims		27		19
Other		14	51

	Total other operating expenses		1,786		1,286

More information on this matter is presented in section 8.16.1.

8.14	Income tax
Total amount of current and deferred tax		1 January -		1 January -

	31 March 2020		31 March 2019


	1. Recognized in the profit and loss account, including:		(366)		(475)
	- current tax	(485)	(354)

	- deferred tax		119		(121)
2. Recognized in other comprehensive income, including:	6	(28)

	- deferred tax		6		(28)
Total		(360)	(503)

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Income tax on other comprehensive income items		1 January -		1 January -
	31 March 2020		31 March 2019

Gross other comprehensive income		58		151
Income tax	6	(28)

Debt instruments		95		5
Loan receivables from clients	3	(2)

Cash flow hedging		(103)		(15)
Equity instruments measured at fair value through other comprehensive income	11	(16)

Net other comprehensive income		64		123

The PZU Group is comprised of entities operating in different countries and subject to different tax regulations. Regulations governing value added tax, corporate income tax, personal income tax or contributions to social security undergo frequent changes. The laws in effect in the countries where the PZU Group operates contain confusing provisions, which result in differences of opinion concerning their legal interpretation between these authorities and enterprises. Tax and other settlements (e.g. regarding customs or foreign currencies) may be inspected by authorities (in Poland - for a period of five years), which may levy high fines and any additional liabilities assessed during the inspection bear interest. These phenomena generate tax risk, as a result of which the amounts reported in the consolidated financial statements may change at a later date after the final amounts are determined by tax authorities.

PZU Finance AB (publ.), a PZU subsidiary, issued 5-year bonds in the period from 2014 to 2015, with the par value of EUR 850 million, which matured in July 2019. Proceeds from the issue were forwarded to PZU in the form of two loans for the total amount of EUR 850 million. Payments under the loans matched the payments under bonds in terms of the payment date and amount. PZU repaid loans to PZU Finance AB on 28 June 2019.

In 2018, in connection with concerns regarding taxation under the Swedish Conversion Act (2000:46) of the FX differences in the situation where Euro is a reporting currency, PZU Finance AB (publ.) applied for an individual tax ruling to the Swedish Tax Interpretation Board (Skatterättsnämnden). On 13 March 2019, PZU Finance AB (publ.) received a ruling under which the FX differences arising on repayment of the loan should be subject to taxation, while the FX differences arising on repayment of the bonds are not subject to taxation. The PZU Group believes that such an interpretation by the Board would mean that a different approach is applied in Sweden to companies reporting in the Euro than to companies reporting in the Swedish kronor, which would not be consistent with the assumptions to the above act and would stand in contradiction with Article 63 of the Treaty on the Functioning of the European Union (TFEU) concerning the necessity to ensure unrestricted movement of capital in the EU, or Articles 49 and 54 of TFEU concerning the freedom of business activity.

On 3 April 2019, PZU Finance AB (publ.) appealed to the Supreme Court of Administration (Högsta förvaltningsdomstolen) against the individual tax ruling of the Swedish Tax Interpretation Board. On 4 May 2020, the Supreme Court of Administration set aside the individual ruling and dismissed the petition submitted by PZU Finance AB (publ) deciding that insufficient grounds had been provided for issuing an individual tax ruling and therefore the tax interpretation should not have been issued. Since the application was rejected, the Company will be able to petition to a Swedish court of administration of the first instance.

In connection with the uncertainty regarding the outcome of the appeal proceedings, as at 31 March 2020, the PZU Group posted a liability in the amount of PLN 84 million (PLN 79 million as at 31 December 2019).

8.15	Earnings per share
Earnings per share		1 January -		1 January -

	31 March 2020		31 March 2019


	Net profit attributable to the equity holders of the parent company		116		747
Weighted average basic and diluted number of common shares	863,331,319	863,315,217

	Number of outstanding shares		863,523,000		863,523,000
	Average weighted number of treasury shares (held by consolidated entities)	(191,681)	(207,783)

	Basic and diluted earnings (losses) per common share (in PLN)		0.13		0.87

In the 3-month periods ended 31 March 2020 and 31 March 2019 there were no transactions or events resulting in the dilution of earnings per share.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.16	Goodwill
Goodwill			31 March 2020		31 December 2019

	Pekao 1)			2,269		2,269
LD 2)		503	471
	Medical companies		303		303
Alior Bank 3)		230	746
	Mass insurance segment in non-life insurance (Link4)		221		221
AAS Balta		41	38

	Other			5		5
Total goodwill	3,572	4,053

Includes goodwill on acquisition of PIM.
Includes goodwill on acquisition of the LD branch in Estonia.
As a result of the performed impairment tests, the PZU Group decided to recognize an impairment loss on goodwill arising from the acquisition of Alior Bank in the amount of PLN 516 million.

8.16.1. Testing for impairment

The analysis has not shown impairment of other CGUs. During the preparation of financial statements for the comparative period, i.e. 3 months ended 31 March 2019, no need to recognize impairment losses was found.

Testing Alior Bank's goodwill for impairment

The indication that required impairment testing of Alior Bank's goodwill was the deterioration of the current results and outlook for the operating activity in connection with the COVID-19 pandemic. A tentative analysis showed that the impact of the expected decline in revenue, driven by reduction of the reference rate by the NBP and the decrease of sales volumes, coupled with the possible credit risk charges, may exceed the surplus amount from the test carried out as at 31 December 2019.

The recoverable amount was calculated based on the value in use by the discounted dividend flows method. Due to the uncertainty regarding the length of the pandemic and its severity for the economy, the value in use was estimated for different scenarios with different assumptions as to the level of risk costs and a different levels of commissions refunded in connection with the CJEU judgment of 11 September 2019. Depending on the scenario, the amount, by which the carrying amount exceeded the value in use was from PLN 312 million to PLN 719 million. The amount of the impairment loss recognized in the profit and loss account was calculated as the average value weighed by the probability of each scenario. Because of the considerable uncertainty, the estimates may change in the future as information on the developments is obtained.

To calculate the value in use, a discount rate of 9.2% was assumed (8.8% as at 31 December 2019) and the growth rate of 3.5% after the projection period (3.5% as at 31 December 2019). An increase of the discount rate to 9.5% or a decrease of the growth rate after the projection period to 2.1% would require the entire goodwill arising from the acquisition of Alior Bank to be written off.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.17 Intangible assets

Intangible assets by type groups	31 March 2020	31 December 2019
Software, licenses and similar assets	1,351	1,278
Trademarks	619	611

- Pekao	340	340
- Alior Bank	100	100

- other	179	171
Client relations	695	738

- Pekao	589	626
- Alior Bank	65	69

- other	41	43
Intangible assets under development	429	452

Other intangible assets	17	17
Total intangible assets	3,111	3,096


8.18	Other assets

Other assets		31 March 2020		31 December 2019

	Reinsurance settlements		67		279
Estimated salvage and subrogation	161	182

	Deferred IT expenses		103		79
Accrued direct claims handling receivables	55	58

	Costs settled over time		108		75
Inventories		26	36
	Payments for taxes on property, means of transport and land		25		-
Payments for the costs of the allowance to the Company Social Benefit Fund	35	-
	Accrued commissions		14		14
Other assets	33	11
	Total other assets		627		734

8.19	Property, plant and equipment

Property, plant and equipment by type groups	31 March 2020	31 December 2019

Plant and machinery	618	541
Means of transport	188	179

Property, plant and equipment under construction	184	257
Real property	2,880	2,921
Other property, plant and equipment	324	328
Total property, plant and equipment	4,194	4,226


8.20	Loan receivables from clients

Loan receivables from clients		31 March 2020		31 December 2019

	Measured at amortized cost		197,066		193,244
Measured at fair value through other comprehensive income	1,551	1,381

	Measured at fair value through profit or loss		232		243
Total loan receivables from clients	198,849	194,868

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Loan receivables from clients	31 March 2020	31 December 2019
Retail segment	107,516	105,912
Operating loans	233	234
Consumer finance	29,354	29,416
Consumer finance loans	2,935	2,778
Loan to purchase securities	45	65
Overdrafts in credit card accounts	986	1,087

Loans for residential real estate	72,880	71,301
Other mortgage loans	805	807

Other receivables	278	224
Business segment	91,333	88,956

Operating loans	33,117	32,760
Car financing loans	8	11

Investment loans	28,031	26,820
Receivables purchased (factoring)	6,347	6,524
Overdrafts in credit card accounts	64	71
Loans for residential real estate	232	190
Other mortgage loans	9,711	9,278
Finance leases	11,434	10,985
Other receivables	2,389	2,317
Total loan receivables from clients	198,849	194,868

8.21	Financial derivatives
Derivatives			31 March 2020		31 December 2019


		Assets		Liabilities		Assets	Liabilities

Interest rate derivatives		5,256		5,276		2,402	2,483
Fair value hedging instruments - SWAP transactions	-	204	1	161
Cash flow hedging instruments - SWAP transactions		1,016		878		459	479
Instruments held for trading, including:	4,240	4,194	1,942	1,843
- FRA transactions		1		12		-	-
- SWAP transactions	4,231	4,180	1,933	1,841

- call options (purchase)		2		1		2	1
- put options (sale)	6	1	7	1

- cap floor options		-		-		-	-
Foreign exchange derivatives	1,169	1,405	540	420

Cash flow hedging instruments - SWAP transactions		122		270		83	25
Instruments held for trading, including:	1,047	1,135	457	395

- forward contracts		429		455		170	169
- SWAP transactions	469	542	192	133
- call options (purchase)		122		100		49	19
- put options (sale)	27	38	46	74
Equity derivatives - held for trading		64		36		119	72
- forward contracts	-	-	-	-
- call options (purchase)		63		35		118	4
- put options (sale)	1	1	1	68

Commodity derivatives - held for trading		297		301		46	43
- forward contracts	10	18	7	5

- SWAP transactions		48		48		14	14
- call options (purchase)	38	6	21	4

- put options (sale)		201		229		4	20
Total derivatives	6,786	7,018	3,107	3,018

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.22 Investment financial assets

					31 March 2020							31 December 2019
					at fair									at fair
					value		at fair							value			at fair
Investment financial assets		at		through		value					at		through			value
	amortized		other		through		Total	amortized		other		through		Total

			cost		compre-		profit or				cost		compre-		profit or
					hensive		loss							hensive			loss
					income									income

	Equity instruments		n/a		428		710	1,138				n/a		518		845		1,363
Participation units and investment		n/a		n/a	4,360	4,360			n/a		n/a		4,820	4,820
certificates

	Debt securities		40,138		48,686		5,982	94,806		35,930		54,693		4,602		95,225
	Government securities	33,381	35,886	5,646	74,913	29,187	37,476	4,393	71,056

	Domestic		33,187		33,658		5,523	72,368		28,985		35,373		4,255		68,613
	Fixed rate	29,984	23,046	2,521	55,551	25,785	22,820	3,054	51,659

	Floating rate		3,203		10,612		3,002	16,817		3,200		12,553		1,201		16,954
	Foreign	194	2,228	123	2,545	202	2,103	138	2,443

	Fixed rate		194		2,228		123	2,545		202		2,103		138		2,443
	Other	6,757	12,800	336	19,893	6,743	17,217	209	24,169

	Fixed rate		867		5,274		80	6,221		892		9,032		40		9,964
	Floating rate	5,890	7,526	256	13,672	5,851	8,185	169	14,205
	Other, including:		11,570		-		-	11,570		10,008		-		-		10,008
	Buy-sell-back transactions	5,353	-	-	5,353	4,064	-	-	4,064
	Term deposits with credit		2,062		-		-	2,062		1,454		-		-		1,454
	institutions

	Loans	4,155	-	-	4,155	4,490	-	-	4,490
	Total investment financial assets		51,708		49,114		11,052	111,874		45,938		55,211		10,267		111,416
Equity instruments measured at fair value through other comprehensive income				31 March 2020		31 December 2019


	Grupa Azoty SA												149			232
Biuro Informacji Kredytowej SA												177			177

	PSP sp. z o.o.												50			50
Polimex-Mostostal SA												18			29
	Krajowa Izba Rozliczeniowa SA												14			14
Other												20			16
	Total equity instruments measured at fair value through other comprehensive income					428		518

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Exposure to debt securities issued by governments other than the Polish government

Carrying amount of debt securities issued by governments other than the Polish		31 March 2020	31 December 2019
government


Lithuania		829	756
Romania	159	134

Latvia		157	149
Croatia	147	132

Ukraine		123	130
Indonesia	86	86
Columbia		83	83
Brazil	80	80
Bulgaria		78	74
Panama	76	74

Russia		72	70
Hungary	57	57

Dominican Republic		54	56
Philippines	52	59

Uruguay		52	50
Other	4401)	453 2)
Total		2,545	2,443

The Other line item states the countries with respect to which the balance sheet exposure does not exceed the equivalent of PLN 50 million: Australia, Azerbaijan, Bahrain, Belarus, Belgium, Bolivia, Chile, Costa Rica, Côte d'Ivoire, Denmark, Egypt, France, Germany, Ghana, Guatemala, Holland, Honduras, Ireland, Italy, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Mexico, Mongolia, Morocco, Namibia, Oman, Paraguay, Peru, Republic of South Africa, Qatar, Saudi Arabia, Senegal, Slovenia, Spain, Sri Lanka, Sweden, Trinidad and Tobago, Turkey, Uzbekistan, United Kingdom, United States, Vietnam.
The Other line item states: Australia, Azerbaijan, Bahrain, Belarus, Belgium, Chile, Costa Rica, Côte d'Ivoire, Denmark, Egypt, France, Germany, Ghana, Guatemala, Holland, Honduras, Ireland, Italy, Jamaica, Jordan, Kazakhstan, Kenya, Mexico, Mongolia, Morocco, Namibia, Nigeria, Oman, Paraguay, Peru, Republic of South Africa, Qatar, Saudi Arabia, Senegal, Slovenia, Spain, Sri Lanka, Sweden, Trinidad and Tobago, Turkey, Uzbekistan, United Kingdom, United States, Vietnam.

Exposure to debt securities issued by corporations and local government units

Carrying amount of debt securities issued by corporations and local government units		31 March 2020		31 December 2019
	Domestic local governments		5,938		6,199
Foreign banks	4,913	4,717
	Companies from the WIG-Energy Index		1,946		2,375
Manufacturing	1,073	1,163

	Financial and insurance services		903		761
National Bank of Poland	864	4,815

	Energy and fuel sector companies (including: Companies from the WIG-Fuels Index)		654		651
Transportation and storage	605	615

	Companies from the WIG-Banks Index		552		558
Construction and real estate market service	547	479
	Professional, scientific and technical activity		412		410
Public utility services	407	410
	Arts, entertainment and recreation (including: WIG - hotels and restaurants)		345		315
Mining and quarrying (including companies included in the WIG-Mining index)	327	353
	Information and communication (including: WIG - Telecommunications)		269		201
Other	138	147

	Total		19,893		24,169

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.23	Receivables

Receivables - carrying amount	31 March 2020	31 December 2019
Receivables on direct insurance, including:	2 682	2,727
- receivables from policyholders	2 546	2,591

- receivables from insurance intermediaries	81	112
- other receivables	55	24

Reinsurance receivables	68	58
Other receivables	3,916	2,952

- receivables from disposal of securities and security deposits 1)	2,351	1,065
- receivables on account of payment card settlements	581	937

- trade receivables	230	249
Receivables from the state budget, other than corporate income tax receivables	133	169

- receivables by virtue of commissions concerning off-balance sheet products	179	153
- prevention settlements	42	47
- receivables from direct claims handling on behalf of other insurance undertakings	27	26
- receivables for acting as an emergency adjuster	13	13

- receivables on account of Corporate Income Tax	55	28
- receivables from security and bid deposits	39	39

- interbank and interbranch receivables	30	35
- refund from the KDPW Guarantee Fund	18	-

- other		218	191
Total receivables	6,666	5,737

this line item presents receivables associated with executed but outstanding transactions on financial instruments.

As at 31 March 2020 and 31 December 2019, the fair value of receivables did not differ significantly from their carrying amount, primarily due to their short-term nature and the policy of recognizing impairment losses.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.24 Impairment of financial assets

Loan receivables from clients				1 January - 31 March 2020					1 January - 31 December 2019
	Basket		Basket		Basket					Basket		Basket		Basket
measured at amortized cost					POCI		Total				POCI		Total
1	2	3			1	2	3


Gross carrying amount

	Beginning of the period		170,284		17,609		10,980		6,054	204,927		159,612		16,069	7,855	7,165	190,701
Recognition of instruments at the time of	18,171	-	-	-	18,171	58,360	-	-	5	58,365
acquisition, creation, granting

	Change attributable to modification of
	cash flows concerning the given		(2)		-		-		-	(2)		(2)		-	-	-	(2)
	instrument
Changes attributable to valuation, sale,	(13,016)	(898)	(113)	(81)	(14,108)	(39,687)	(1,855)	(511)	(1,116)	(43,169)
exclusion or expiration of the instrument


	Assets written down from the balance		-		-		(353)		(5)	(358)		-		(50)	(1,015)	-	(1,065)
	sheet

Reclassification to basket 1	3,431	(3,402)	(29)	-	-	6,125	(6,064)	(61)	-	-
	Reclassification to basket 2		(5,832)		6,128		(296)		-	-		(11,063)		11,380	(317)	-	-
Reclassification to basket 3	(303)	(935)	1,238	-	-	(2,789)	(1,997)	4,786	-	-

	Other changes, including foreign		418		24		143		9	594		(272)		126	243	-	97
	exchange differences

End of the period	173,151	18,526	11,570	5,977	209,224	170,284	17,609	10,980	6,054	204,927

Expected credit losses
	Beginning of the period		(800)		(1,321)		(5,247)		(4,315)	(11,683)		(870)		(1,189)	(3,601)	(4,801)	(10,461)
Establishment of allowances for newly	(144)	-	-	-	(144)	(815)	-	-	(3)	(818)
acquired, created, granted instruments


	Changes attributable to valuation, credit
	risk level, sale, exclusion or expiration of		148		(147)		(420)		3	(416)		1,007		(501)	(2,186)	452	(1,228)
	the instrument, excluding reclassification
Assets written down from the balance	-	-	353	4	357	-	50	1,015	-	1,065
sheet

	Reclassification to basket 1		(199)		189		10		-	-		(371)		347	24	-	-
Reclassification to basket 2	55	(131)	76	-	-	134	(238)	104	-	-
	Reclassification to basket 3		14		184		(198)		-	-		132		224	(356)	-	-
Other changes, including foreign	(3)	(97)	(171)	(1)	(272)	(17)	(14)	(247)	37	(241)
exchange differences

	End of the period		(929)		(1,323)		(5,597)		(4,309)	(12,158)		(800)		(1,321)	(5,247)	(4,315)	(11,683)
Net carrying amount at the end of the	172,222	17,203	5,973	1,668	197,066	169,484	16,288	5,733	1,739	193,244
period

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Loan receivables from clients measured at				1 January - 31 March 2020					1 January - 31 December 2019
fair value through other comprehensive		Basket		Basket		Basket		POCI		Total		Basket		Basket		Basket		POCI		Total
income	1	2	3			1	2	3


Carrying amount

	Beginning of the period		772		609		-		-		1,381		1,511		-		-		-		1,511
Recognition of instruments at the time of	99	-	-	-	99	571	-	-	-		571
acquisition, creation, granting

	Change in measurement		50		41		-		-		91		-		(6)		-		-		(6)
Changes attributable to sale, exclusion or	-	(5)	-	-	(5)	(686)	(16)	-	-		(702)
expiration of the instrument


	Reclassification to basket 2		-		-		-		-		-		(624)		624		-		-		-
Other changes	(5)	(10)	-	-	(15)	-	7	-	-		7

	End of the period		916		635		-		-		1,551		772		609		-		-		1,381

	Expected credit losses
Beginning of the period	(4)	(17)	-	-	(21)	(14)	-	-	-		(14)
	Establishment of allowances for newly		(1)		-		-		-		(1)		(2)		-		-		-		(2)
	acquired, created, granted instruments

Changes attributable to valuation or credit	(2)	1	-	-	(1)	2	(9)	-	-		(7)
risk level (excluding reclassification)

	Changes attributable to sale, exclusion or		-		-		-		-		-		3		-		-		-		3
	expiration of the instrument

Reclassification to basket 2	-	-	-	-	-	8	(8)	-	-		-

	Other changes		1		(1)		-		-		-		(1)		-		-		-		(1)
End of the period	(6)	(17)	-	-	(23)	(4)	(17)	-	-		(21)

The allowance pertaining to loan receivables from clients measured at fair value through other comprehensive income is recognized in revaluation reserve and it does not lower the carrying amount of assets.

Debt investment financial assets				1 January - 31 March 2020					1 January - 31 December 2019
	Basket		Basket		Basket					Basket		Basket		Basket
measured at amortized cost					POCI		Total				POCI		Total
1	2	3			1	2	3

Gross carrying amount
	Beginning of the period		35,614		368		34		-	36,016		34,657		35	33	2	34,727
Recognition of instruments at the time of	7,167	-	-	-	7,167	9,538	-	-	-	9,538
acquisition, creation, granting


	Change in measurement		278		-		-		-	278		683		-	-	-	683
Changes attributable to sale, exclusion or	(3,290)	(7)	-	-	(3,297)	(9,112)	-	-	(2)	(9,114)
expiration of the instrument

	Reclassification to basket 2		-		-		-		-	-		(332)		332	-	-	-
Other changes, including foreign exchange	73	(1)	-	-	72	180	1	1	-	182
differences


	End of the period		39,842		360		34		-	40,236		35,614		368	34	-	36,016

	Expected credit losses
Beginning of the period	(33)	(19)	(34)	-	(86)	(35)	(7)	(33)	-	(75)
	Establishment of allowances for newly		(3)		-		-		-	(3)		(6)		-	-	-	(6)
	acquired, created, granted instruments

Changes attributable to valuation or credit	(11)	-	-	-	(11)	(4)	(3)	-	-	(7)
risk level (excluding reclassification)

	Changes attributable to sale, exclusion or		3		-		-		-	3		5		-	-	-	5
	expiration of the instrument

Reclassification to basket 2	-	-	-	-	-	9	(9)	-	-	-

	Other changes, including foreign exchange		(1)		-		-		-	(1)		(2)		-	(1)	-	(3)
	differences

End of the period	(45)	(19)	(34)	-	(98)	(33)	(19)	(34)	-	(86)
	Net carrying amount at the end of the		39,797		341		-		-	40,138		35,581		349	-	-	35,930
	period

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Value of allowances for expected credit losses concerning buy-sell-back transactions is zero.

Debt investment financial assets		1 January - 31 March 2020			1 January - 31 December 2019
measured at fair value through	Basket	Basket	Basket		POCI			Total	Basket	Basket	Basket	POCI	Total
other comprehensive income	1	2	3				1	2	3

Carrying amount
Beginning of the period	54,537	156		-		-		54,693	38,142	73	-	-	38,215
Recognition of instruments at the
time of acquisition, creation,	38,923	-		-		-	38,923	203,057	-	-	-	203,057
granting
Change in measurement	392	(16)		-		-		376	725	(5)	-	-	720
Change attributable to modification
of cash flows concerning the given	(5)	-		-		-	(5)	(8)	-	-	-	(8)
instrument
Changes attributable to sale,
exclusion or expiration of the	(45,567)	-		-		-		(45,567)	(187,893)	-	-	-	(187,893)
instrument
Reclassification to basket 1	10	(10)		-		-	-
Reclassification to basket 2	(27)	27		-		-		-	(87)	87	-	-	-
Other changes, including foreign	268	(2)		-		-	266	601	1	-	-	602
exchange differences


End of the period	48,531	155		-		-		48,686	54,537	156	-	-	54,693

Expected credit losses
Beginning of the period	(41)	(2)		-		-	(43)	(37)	(3)	-	-	(40)
Establishment of allowances for
newly acquired, created, granted	(3)	-		-		-		(3)	(18)	-	-	-	(18)
instruments
Changes attributable to valuation or
credit risk level (excluding	(19)	(2)		-		-	(21)	(1)	2	-	-	1
reclassification)

Changes attributable to sale,
exclusion or expiration of the	4	-		-		-		4	14	-	-	-	14
instrument
Reclassification to basket 2	-	-		-		-	-	1	(1)	-	-	-

End of the period	(59)	(4)		-		-		(63)	(41)	(2)	-	-	(43)

The allowance pertaining to debt investment financial assets measured at fair value through other comprehensive income is recognized in revaluation reserve and it does not lower the carrying amount of assets.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Term deposits with credit				1 January - 31 March 2020				1 January - 31 December 2019
	Basket		Basket		Basket					Basket		Basket		Basket
institutions					POCI		Total				POCI		Total
1	2	3			1	2	3


Gross carrying amount

	Beginning of the period		1,455		1		-		-	1,456		2,770		1	9	-	2,780
Recognition of instruments at the
time of acquisition, creation,	34,546	-	-	-	34,546	228,598	-	-	-	228,598
granting

	Change in measurement		9		-		-		-	9		4		-	-	-	4
Changes attributable to sale,
exclusion or expiration of the	(33,921)	-	-	-	(33,921)	(229,902)	-	-	-	(229,902)
instrument
	Other changes, including foreign		(27)		(1)		-		-	(28)		(15)		-	(9)		(24)
	exchange differences

End of the period	2,062	-	-	-	2,062	1,455	1	-	-	1,456

Expected credit losses
	Beginning of the period		(2)		-		-		-	(2)		(2)		-	(9)	-	(11)
Establishment of allowances for
newly acquired, created, granted	(4)	-	-	-	(4)	(6)	-	-	-	(6)
instruments
	Changes attributable to variations in
	measurement of instruments or		2		-		-		-	2		-		-	-	-	-
	credit risk level (excluding

	reclassification)
Changes attributable to valuation or
credit risk level (excluding	2	-	-	-	2	2	-	-	-	2
reclassification)

	Other changes, including foreign		2		-		-		-	2		4		-	9	-	13
	exchange differences

End of the period	-	-	-	-	-	(2)	-	-	-	(2)

	Net carrying amount at the end of		2,062		-		-		-	2,062		1,453		1	-	-	1,454
	the period

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

		1 January - 31 March 2020					1 January - 31 December 2019
Loans	Basket	Basket	Basket		POCI		Total		Basket	Basket	Basket		POCI		Total
	1	2	3			1	2	3


Gross carrying amount

Beginning of the period	4,517	-	-		-		4,517	4,595	-	-		-		4,595
Recognition of instruments at the
time of acquisition, creation,	293	-	-	-	293	547	-	-	-		547
granting

Change in measurement	66	-	-		-		66	14	-	-		-		14
Changes attributable to sale,
exclusion or expiration of the	(691)	-	-	-	(691)	(577)	(61)	-	-		(638)
instrument
Reclassification to basket 2	-	-	-		-		-	(61)	61	-		-		-
Other changes	-	-	-	-	-	(1)	-	-	-		(1)

End of the period	4,185	-	-		-		4,185	4,517	-	-		-		4,517

Expected credit losses
Beginning of the period	(27)	-	-	-	(27)	(60)	-	-	-		(60)

Establishment of allowances for
newly acquired, created, granted	(2)	-	-		-		(2)	(2)	-	-		-		(2)
instruments
Changes attributable to valuation or
credit risk level (excluding	(6)	-	-	-	(6)	33	(2)	-	-		31
reclassification)

Changes attributable to sale,
exclusion or expiration of the	5	-	-		-		5	1	3	-		-		4
instrument
Reclassification to basket 2	-	-	-	-	-	1	(1)	-	-		-

End of the period	(30)	-	-		-		(30)	(27)	-	-		-		(27)
Net carrying amount at the end of	4,155	-	-	-	4,155	4,490	-	-	-		4,490
the period

Receivables										1 January -					1 January -

									31 March 2020			31 December 2019

Gross carrying amount
Beginning of the period											6,825						7,282
Changes in the period												946						(457)
End of the period											7,771						6,825

Expected credit losses

Beginning of the period											(1,088)						(939)
Changes in the period												(17)						(149)

End of the period											(1,105)						(1,088)
Net carrying amount at the end of the period										6,666						5,737

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.25 Fair value

8.25.1. Description of valuation techniques

8.25.1.1. Debt securities and loans

Fair values of debt securities are determined on the basis of quotations publicly available on an active market or valuations published by an authorized information service, and if there are no such quotations - using valuation models containing references to published price quotations of the underlying financial instruments, interest rates and stock exchange indices.

The PZU Group conducts an internal review of the valuations published by the authorized information service comparing them to the valuations available from other sources based on data which can be observed on the market.

The fair value of loans and debt securities for which an active market does not exist is measured using the discounted cash flow method. Discount rates are determined on the basis of the yield curve for government bonds adjusted by the credit spread. It is calculated as at the newest issue date based on the issue price and leads to parallel shifting of the yield curve for government bonds by a fixed amount along its whole length or as the difference between the yield of quoted debt securities of issuers with a similar rating operating in similar industries and the yield of government bonds (German government bonds for bonds denominated in EUR) multiplied by a ratio determined as at the issue date, taking into account issuer-specific risk in the discount curve.

8.25.1.2. Equity-based financial assets

Fair values of equity-based financial assets are determined on the basis of quotations publicly available on an active market or, if they are unavailable, based on the present value of future forecast profit or loss of companies or measurement models based on available market data.

8.25.1.3. Participation units and investment certificates of mutual funds

Fair values of participation units and investment certificates of mutual funds are measured using the value of the participation units and investment certificates published by the mutual fund companies. Such valuation reflects the PZU Group's share in net assets of these funds.

8.25.1.4. Derivatives

For derivatives listed on an active market, the fair value is considered to be the closing price as at the balance-sheet date.

The fair value of derivatives not quoted on an active market, including forward contracts and interest rate swaps is measured using the discounted future cash flow method. The rates from OIS curves (overnight indexed swaps), taking into account the currency of the security deposit provided for the instrument, are used to discount cash flows.

The fair value of options related to structured deposits is measured based on valuations provided by the issuers of such options, taking into account a verification of these valuations performed by the PZU Group, based on its own valuation models.

8.25.1.5. Loan receivables from clients

In order to determine a change in the fair value of loan receivables from clients (excluding current account overdraft), the margins earned on newly granted loans (in the month preceding the date as at which the consolidated financial statements are prepared) are compared with the margins in the whole loan portfolio. If the margins earned on newly granted loans are higher than the margins in the existing portfolio the fair value of the loan portfolio is lower than its carrying amount.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Loan receivables from clients are classified in full to level 3 of the fair value hierarchy due to the use of a valuation model with significant non-observable input data, i.e. current margins generated on newly granted loans.

8.25.1.6. Property measured at fair value

Depending on the nature of the real property, its fair value is measured using the comparative method, the income method or the residual method.

The comparative method is used for measuring free land for development and certain smaller and less valuable buildings (such as residential units, garages, etc.). The comparative method assumes the determination of the fair value by reference to observable market prices, taking into account weighting coefficients. Weighting coefficients include, for instance, factors such as the passage of time and the trend of changes in market prices, the location, exposure, intended use in the zoning plan, accessibility for transportation purposes and access roads, surface, neighborhood (including the proximity to attractive objects), investment opportunities, physical conditions, form of exercising control, etc.

The income method assumes estimation of the fair value of the real property based on the discounted value of cash flows. The calculation takes into account such variables as the capitalization rate, the level of rents, the level of operating expenses, the provision for vacancy, losses resulting from rent free periods, rent arrears, etc. The values of the variables described above vary depending on the nature and the intended use of the measured real property (office space, retail space, logistics and warehousing space), its modernity and location (access roads, distance from an urban center, accessibility, exposure, etc.) as well as parameters specific to the relevant local market (such as capitalization rates, the level of rents, operating expenses, etc.).

The residual method is used to measure the market value if the real property is to be subjected to construction works. The fair value of such a real property is calculated as the difference in the value of the property after the construction works and the average value of the cost of these works, taking into account any gains earned in the market on similar properties.

Property measured at fair value is valuated by licensed appraisers. The acceptance of each such measurement is additionally preceded by a review conducted by PZU Group employees in order to eliminate any potential errors or inconsistencies. Any emerging doubts are clarified on an ongoing basis.

Investment property is measured in accordance with the following rules:

real properties held by mutual funds controlled by PZU - measured every 6 months - on days ending each financial half- year and financial year;
investment properties held by PZU Group companies - the most valuable items are measured in the event of ascertainment of a possible significant change in the value (usually on an annual basis). Regardless of the value, each investment property is measured not less frequently than once every 5 years;
real properties held for sale - measured before the commencement of their active exposure to the market in accordance with the requirements of IFRS 5.

8.25.1.7. Liabilities on the issue of own debt securities and subordinated liabilities

The fair value of liabilities on the issue of own debt securities, including subordinated liabilities, is calculated as the present value of expected payments based on the current interest rate curves and the current credit spread.

8.25.1.8. Liabilities under deposits

Due to the fact that deposits are accepted under current operations on a daily basis, hence their terms are similar to the current market terms for identical transactions, and the time to maturity for such loans is short, it is deemed that for liabilities to clients with maturities up to 1 year the fair value does not significantly deviate from the carrying amount. For deposits over 1 year, fair value is calculated as the amount of future expected cash flows discounted as at the respective balance sheet date using the risk-free market rate plus a margin.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.25.1.9. Other liabilities

Liabilities under investment contracts for the client's account and risk

Liabilities under investment contracts for the client's account and risk are measured at the fair value of assets covering the liabilities of the unit-linked fund associated with the relevant investment contract.

Liabilities to members of consolidated mutual funds

Liabilities to members in the consolidated mutual funds are measured at the fair value of assets of the relevant mutual fund (according to the share in the mutual fund's net assets).

Liabilities on borrowed securities

Liabilities on securities borrowed to make a short sale are measured at the fair value of borrowed securities.

8.25.2. Fair value hierarchy

On the basis of the input data for fair value measurement, the individual assets and liabilities for which fair value has been presented have been classified to the following levels:

Level I - assets and liabilities measured based on quoted prices (unadjusted) from active markets for identical assets and liabilities. This level includes:
- liquid quoted debt securities;
- shares and investment certificates quoted on exchanges;
- listed derivatives;
- liabilities on borrowed securities quoted on exchanges (short sale).
Level II - assets and liabilities whose measurement is based on input data other than quoted prices included within level I, which can be observed on the market, either directly (as prices) or indirectly (derived from prices). This level includes:
- quoted debt securities carried on the basis of the valuations published by an authorized information service;
- derivatives - among others FX Swap, FX Forward, IRS, CIRS, FRA;
- participation units in mutual fund;
- investment properties or properties held for sale measured using the comparative method, including free land free land for development and certain smaller and less valuable buildings (such as residential units, garages, etc.);
- liabilities to members of consolidated mutual funds;
- investment contracts for the client's account and risk.
Level III - assets measured based on input data unobserved on the existing markets (unobservable input data). This level includes:
- unquoted debt securities and non-liquid quoted debt securities (including non-treasury debt securities issued by other financial entities, local government and non-financial entities), measured using models based on discounted cash flows;
- investment properties or properties held for sale measured using the income method or the residual method;
- loan receivables from clients and liabilities to clients under deposits;
- options embedded in certificates of deposit issued by PZU Group companies and options concluded in the interbank market to hedge embedded option positions.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

In a situation in which the measurement of an asset or liability is based on input data classified in different levels of the fair value hierarchy, the measured asset is assigned to the lowest level from which the input data are taken, provided that they have a significant impact on the overall measurement.

The value of the measurement of components of assets or liabilities qualified in level III is affected to significant extent by unobservable input data.

Measured assets

Unobservable data

Description

Impact on

measurement

Fair values are estimated using valuation techniques, with an assumption

that when the loan is granted, the fair value is equal to the carrying amount.

The fair value of loans without recognized impairment is equal to the sum of

future expected cash flows discounted at the balance sheet date less

expected credit loss. The cash flow discounting rate is the appropriate risk-

Liquidity margin and

free market rate plus the liquidity margin and current sales margin for the

loan's product group. The margin is determined by product group and by

Loan receivables from

current margin from

Negative

maturity. For the purpose of estimating the fair value of foreign currency

clients

the sale of the

correlation.

loans, the liquidity margin for PLN loans is used, adjusted by quotations of FX

product group

swap and basis-swap transactions. The fair value of loans with recognized

impairment is equal to the sum of future expected salvage discounted using

the effective interest rate, since the average expected recoveries fully reflect

the credit risk component. For loans that do not have a repayment schedule

(current account loans, overdrafts and credit cards), the fair value is assumed

to be equal to the carrying amount.

Fair values are estimated using valuation techniques, with an assumption

that when the deposit is accepted, the fair value is equal to the carrying

amount. The fair value of term deposits is equal to the sum of future

Liabilities to clients

expected cash flows discounted at the balance sheet date. The cash flow

Negative

Sales margin

discounting rate is the appropriate risk-free market rate plus the current

under deposits

sales margin. The margin is determined on the basis of deposits accepted in

correlation.

the last quarter, by product group and by maturity. For short-term deposits

(current deposits, overnight deposits and savings accounts), the carrying

amount is taken as fair value.

Options embedded in

Embedded

instruments are

plain vanilla

options and

exotic

options for

individual

shares, indices,

commodities

and other

market

multiples,

certificates of deposit

including interest rate indices and exchange rates and their baskets. All

issued by PZU Group

separated options are offset on an ongoing basis on the interbank market.

companies and options

Model parameters

Currency options are measured based on the Garman-Kohlhagen option

concluded in the

pricing model (and in the case of barrier and Asian options based on the so-

interbank market to

called extended Garman-Kohlhagen model). Exotic options embedded in

hedge embedded

deposit agreements and their offsets are measured using the Monte-Carlo

option positions.

technique, assuming a geometric Brownian motion model for risk factors.

Spreads are observed on all bonds (their series) or loans of the same issuer or

Non-liquid bonds and

Credit spreads

a similar issuer. These spreads are observed on the dates of issue of new

Negative

loans

bond series, dates of conclusion of new loan agreements and dates of market

correlation.

transactions on the receivables following from such bonds and loans.

Investment property

Capitalization rate is determined through analysis of rates of return obtained

Negative

and property

Capitalization rate

in transactions for similar properties.

correlation.

designated for sale

Construction costs

Construction costs are determined based on market construction costs less

Positive

costs incurred as at the date of measurement.

correlation.

Monthly rental rate

per 1m2 of relevant

Rental rates are observed for similar properties of similar quality, in similar

Positive

space or for one

locations and with a similar size of leased space.

correlation.

parking space

Currency options are measured based on the Garman-Kohlhagen option

pricing model (and in the case of barrier and Asian options based on the so-

Derivatives

Model parameters

called extended Garman-Kohlhagen model). Exotic options embedded in

deposit agreements and their offsets are measured using the Monte-Carlo

technique, assuming a geometric Brownian motion model for risk factors.

Own issues and

Issue spread above

If the historical spread of issues above the market curve is used, these issues

Negative

subordinated loans

the market curve

are classified at level III of the fair value hierarchy.

correlation.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Measured assets	Unobservable data	Description	Impact on
measurement

Equity instruments not		Quotations of financial services, current value of future forecast profit or loss
quoted on an active
	of the company or measurement models based on available market data.
market

8.25.3. Assets and liabilities measured at fair value

Assets and liabilities measured at fair value				31 March 2020						31 December 2019
	Level I		Level II		Level III		Total		Level I		Level II	Level III	Total


	Assets
Investment financial assets measured at fair value	29,930	11,936	7,248	49,114	32,595	15,555	7,061	55,211
through other comprehensive income

	Equity instruments		177		-		251		428		271	1	246	518
	Debt securities	29,753	11,936	6,997	48,686	32,324	15,554	6,815	54,693

	Investment financial assets measured at fair value		6,104		4,644		304		11,052		4,985	4,996	286	10,267
	through profit or loss

	Equity instruments	488	3	219	710	613	6	226	845
	Participation units and investment certificates		113		4,228		19		4,360		111	4,690	19	4,820
	Debt securities	5,503	413	66	5,982	4,261	300	41	4,602
	Loan receivables from clients		-		-		1,783		1,783		-	-	1,624	1,624
	Measured at fair value through other	-	-	1,551	1,551	-	-	1,381	1,381
	comprehensive income


	Measured at fair value through profit or loss		-		-		232		232		-	-	243	243
Financial derivatives	8	6,714	64	6,786	4	2,985	118	3,107

	Investment property		-		154		1,893		2,047		-	153	1,828	1,981
Liabilities
	Derivatives		11		6,973		34		7,018		3	2,947	68	3,018
Liabilities to members of consolidated mutual funds	-	106	-	106	-	90	-	90
	Investment contracts for the client's account and risk		-		226		-		226		-	259	-	259
	(unit-linked)

Liabilities on borrowed securities (short sale)	417	-	-	417	293	-	-	293

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

		Investment financial assets												Loan receivables from
		measured at fair value		Investment financial assets measured at fair
								clients measured at fair
Movement in assets and liabilities classified		through other comprehensive		value through profit or loss
				Derivatives -		Derivatives -		value			Investment
as Level III of the fair value hierarchy,		income
									assets		liabilities						property
in the period ended 31 March 2020								Investment						through other		through

		Equity		Debt		Equity			Debt						comprehen-		profit or
					certificates
															sive income		loss


Beginning of the period	246		6,815	226	19		41	118	68	1,381		243	1,828

Purchase/opening of the position/granting		5		128		-		-		254		1		1		100		-	16
Reclassification from Level II 1)	-		411	-	-		15	-	-	-		-	-
Reclassifications from assets held for sale to		-		-		-		-		-		-		-		-		-	296
investment property

Gains or losses through profit or loss	-		43	(22)	-		(1)	(42)	(29)	6		2	(5)

- interest income calculated using the		-		42		-		-		-		-		-		6		2	-
effective interest rate

- other net investment income	-		-	-	-		-	(1)	-	-		-	-
- result on derecognition of financial		-		1		-		-		-		-		-		-		-	-
instruments and investments

- net movement in fair value of assets and	-		-	(22)	-		(1)	(41)	(29)	-		-	(5)
liabilities measured at fair value

Profit or loss recognized in other		-		(227)		-		-		-		-		-		(17)		-	-
comprehensive income

Sales/settlements/repayments	-		(159)	-	-		(243)	(13)	(6)	81		(13)

Reclassification to assets held for sale		-		-		-		-		-		-		-		-		-	(256)
Reclassification to Level II	-		(14)	-	-		-	-	-	-		-	-
Amendments to lease agreements		-		-		-		-		-		-		-		-		-	14
Foreign exchange differences	-		-	15	-		-	-	-	-		-	-
End of the period		251		6,997		219		19		66		64		34		1,551		232	1,893

Information on restatements is presented in item 8.25.6.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

		Investment financial assets												Loan receivables from
		measured at fair value		Investment financial assets measured at fair
								clients measured at fair
Movement in assets and liabilities classified		through other comprehensive		value through profit or loss
				Derivatives -		Derivatives -		value			Investment
as Level III of the fair value hierarchy		income
									assets		liabilities						property
in the year ended 31 December 2019								Investment						through other		through

		Equity		Debt		Equity			Debt						comprehen-		profit or
					certificates
															sive income		loss


Beginning of the period	212		6,996	115	14		123	68	36	1,511		303	1,556

Recognition of right-of-use assets (IFRS16)		-		-		-		-		-		-		-		-		-	44
Purchase/opening of the position/granting	-		997	-	-		573	26	21	167		-	195
Reclassification from Level II 1)		-		545		-		-		-		1		-		-		-	-
Reclassifications from assets held for sale to	-		-	-	-		-	-	-	-		-	1
investment property


Gains or losses through profit or loss		-		176		111		3		6		57		36		29		(2)	48
- interest income calculated using the	-		170	-	-		-	-	-	29		(2)	-
effective interest rate

- result on derecognition of financial		-		6		-		-		1		-		-		-		-	-
instruments and investments

- net movement in fair value of assets and	-		-	111	3		5	57	36	-		-	48
liabilities measured at fair value

Profit or loss recognized in other		34		35		-		-		-		-		-		16		-	-
comprehensive income

Sales/settlements/repayments	-		(1,851)	-	-		(661)	(34)	(25)	(342)		(58)	(4)

Reclassification to assets held for sale		-		-		-		-		-		-		-		-		-	(12)
Reclassification to Level II	-		(83)	-	-		-	-	-	-		-	-
Foreign exchange differences		-		-		-		2		-		-		-		-		-	-
End of the period	246		6,815	226	19		41	118	68	1,381		243	1,828

Information on restatements is presented in item 8.25.6.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.25.4. Assets and liabilities not measured at fair value

Fair value of assets and liabilities for which it is				31 March 2020						31 December 2019

only disclosed		Level I		Level II		Level III		Total		Level I		Level II		Level III		Total


Assets
	Entities measured by the equity method										-		-		-		-
Loan receivables from clients measured at amortized	-	-	195,703	195,703	-	-	193,964	193,964
cost


	Investment financial assets measured at amortized		29,525		4,274		22,036		55,835		26,032		2,149		21,742		49,923
	cost

	Debt securities	29,525	1,540	13,148	44,213	26,032	1,123	12,674	39,829
	Buy-sell-back transactions		-		1,771		3,582		5,353		-		738		3,326		4,064
	Term deposits with credit institutions	-	963	1,104	2,067	-	288	1,168	1,456

	Loans		-		-		4,202		4,202		-		-		4,574		4,574
Liabilities

	Liabilities to banks		-		1,258		6,393		7,651		-		897		5,728		6,625
Liabilities to clients under deposits	-	-	228,475	228,475	-	-	219,233	219,233

	Liabilities on the issue of own debt securities 1)		-		5,424		2,517		7,941		-		6,700		2,667		9,367
Subordinated liabilities 1)	-	2,792	3,871	6,663	-	2,766	4,014	6,780
	Liabilities on account of repurchase transactions		-		492		3		495		-		599		-		599

The liabilities classified to level II are those whose measurement was not affected by unobservable parameters. They are primarily liabilities on account of bonds issued by Pekao.

8.25.5. Change in fair value measurement methodology for financial instruments measured at fair value

In the 3-month period ended 31 March 2020 and in 2019, there were no changes in the fair value measurement method for financial instruments measured at fair value which would be of material significance for the consolidated financial statements.

8.25.6. Reclassification between fair value hierarchy levels

If the method of measurement of assets or liabilities changes because of e.g. losing (or obtaining) access to quotations observed on an active market, such assets or liabilities are reclassified between Levels I and II.

Assets or liabilities are reclassified between Levels II and III (or accordingly between Levels III and II) when:

there is a change in the measurement model resulting from the application of new unobservable factors (or accordingly observable ones); or
previously used factors that had a significant impact on the measurement are no longer observable (or accordingly become observable) on the active market.

Reclassifications between different levels of the fair value hierarchy are effected on the date ending each quarter according to the value as at that date.

The COVID-19 pandemic indirectly contributed to increased volatility on financial markets and reduced liquidity in some market segments, in particular corporate and municipal securities. This resulted in reclassification of some assets to lower fair value levels.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

In the 3-month period ended 31 March 2020, the following reclassifications of assets between fair value levels was made:

reclassification from Level III to Level II was effected with respect to municipal bonds, for which the impact exerted by estimated credit parameters on the measurement was immaterial.
reclassification from Level II to Level III was effected with respect to corporate and municipal bonds, for which the estimated credit parameters exerted material impact on the measurement, treasury bonds, for which the estimated spread exerted material impact on the measurement;
reclassification from Level I to Level II was effected with respect to government bonds, for which measurement was made using information about prices of comparable financial instruments.

In 2019, the following transfers of assets between fair value levels were made:

reclassification from Level III to Level II was effected with respect to municipal and corporate bonds measured using market information about prices of comparable financial instruments, municipal and corporate bonds for which the estimated credit parameters had no material impact on their measurement because the unobservable factor (correlation) had no material impact on their measurement,
reclassification from Level II to Level III was effected with respect to corporate to municipal bonds, for which the estimated credit parameters exerted material impact on the measurement, and capital market derivatives, for which the estimated parameter (correlation) exerted material impact on the measurement.

8.26 Changes in classification of financial assets resulting from the change of purpose or use of such assets

In the 3-month period ended 31 March 2020, no changes were made to the classification of financial assets resulting from a change in the purpose or use of such assets.


8.27	Assets held for sale

Assets held for sale by classification before transfer		31 March 2020		31 December 2019
	Groups held for sale		425		475
Assets		461	504
	Investment property		413		454
	Receivables	8	9
	Deferred tax assets		5		6
	Cash and cash equivalents	30	34

	Other assets		5		1
Liabilities related directly to assets classified as held for sale	36	29

	Deferred tax liability		12		6
	Other liabilities	13	11

	Liabilities for borrowings		4		5
	Other financial liabilities	6	6

	Other provisions		1		1
Other assets held for sale	76	76
	Property, plant and equipment		33		33
Investment property	43	43
	Assets and groups of assets held for sale		537		580
Liabilities related directly to assets classified as held for sale	36	29

The "Investment property" line item and the "Groups held for sale" section presented mainly the properties held by real estate sector mutual funds as held for sale, since the expected investment horizon has been reached.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.28 Share capital

Share capital is recognized at the amount stated in the parent company's articles of association and registered in the National Court Register

All the Shares have been fully paid for.

As at 31 March 2020 and 31 December 2019

Type of

Value of

Right to

Series/

Type of

limitation

Number of

series/issue

Capital

Date of

Type of shares

dividends

issue

preference

on rights to

at par value

coverage

registration

(from a date)

(PLN)

bearer

none

604,463,200

60,446,320

cash

23.01.1997

27.12.1991

bearer

none

259,059,800

25,905,980

in-kind

31.03.1999

01.01.1999

contribution

Total number of shares

863,523,000

Total share capital

86,352,300

The structure of PZU's shareholders and information on transactions with material blocks of PZU shares are presented in section 2.

8.29 Distribution of the parent company's profit

Information on distribution of the parent company's profit is presented in section 21.

8.30	Technical provisions
				31 March 2020			31 December 2019

Technical provisions
	gross		reinsurers'		net		gross		reinsurers'		net
				share				share

Technical provisions in non-life insurance	24,846	(1,886)		22,960	24,457	(1,856)		22,601
Provision for unearned premiums		8,937		(797)		8,140		8,765		(856)		7,909
Provision for unexpired risk	16	-		16	14	-		14
Provisions for outstanding claims and benefits		9,871		(869)		9,002		9,676		(785)		8,891
	- for reported claims	3,498	(755)		2,743	3,414	(670)		2,744

	- for claims not reported (IBNR)		4,244		(88)		4,156		4,210		(90)		4,120
	- for claims handling expenses	2,129	(26)		2,103	2,052	(25)		2,027

Provision for the capitalized value of annuities		6,019		(220)		5,799		5,999		(215)		5,784
Provisions for bonuses and discounts for insureds	3	-		3	3	-		3

Technical provisions in life insurance		22,334		-		22,334		22,872		-		22,872
Provision for unearned premiums	105	-		105	106	-		106

Life insurance provision		16,344		-		16,344		16,346		-		16,346
Provisions for outstanding claims and benefits	608	-		608	622	-		622
	- for reported claims		161		-		161		167		-		167
	- for claims not reported (IBNR)	441	-		441	449	-		449
	- for claims handling expenses		6		-		6		6		-		6
Provisions for bonuses and discounts for insureds	7	-		7	6	-		6

Other technical provisions		206		-		206		214		-		214
Unit-linked provision	5,064	-		5,064	5,578	-		5,578

Total technical provisions		47,180		(1,886)		45,294		47,329		(1,856)		45,473

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.31 Subordinated liabilities

						Carrying	Carrying
		Par value			Issue (receipt) date /	amount	amount
		Currency	Interest rate	31 March	31 December
		(in millions)	Maturity date
				2020	2019

						(PLN million)	(PLN million)

	Liabilities classified as PZU's equity
Subordinated bonds - PZU	2,250	PLN	WIBOR 6M + margin	30 June 2017	2,259	2,279
29 July 2027

Liabilities classified as Pekao's equity

A series bonds	1,250	PLN	WIBOR 6M + margin

B series bonds	550	PLN	WIBOR 6M + margin

C series bonds	200	PLN	WIBOR 6M + margin

D series bonds	350	PLN	WIBOR 6M + margin

D1 series bonds	400	PLN	WIBOR 6M + margin

30 October 2017	1,267	1,257
29 October 2027

15 October 2018		559	554
16 October 2028

15 October 2018	203	201
14 October 2033


4 June 2019		354	351
4 June 2031

4 December 2019	405	401
4 June 2031

Liabilities classified as Alior Bank's equity

F series bonds

322

PLN

WIBOR 6M + margin

26 September 2014

222

225

26 September 2024

G series bonds

193

PLN

WIBOR 6M + margin

31 March 2015

193

196

31 March 2021

I and I1 series bonds

183

PLN

WIBOR 6M + margin

4 December 2015

149

148

6 December 2021

K and K1 series bonds

600

PLN

WIBOR 6M + margin

20 October 2017

612

605

20 October 2025

Meritum Bank B series bonds

PLN

WIBOR 6M + margin

29 April 2013

29 April 2021

EUR001 series bonds

EUR

LIBOR 6M + margin

4 February 2016

4 February 2022

P1A series bonds

150

PLN

WIBOR 6M + margin

27 April 2016

153

151

16 May 2022

P1B series bonds

PLN

WIBOR 6M + margin

29 April 2016

16 May 2024

P2A series bonds

150

PLN

WIBOR 6M + margin

14 December 2017

152

150

29 December 2025

Subordinated liabilities

6,714

6,700

The lower carrying amount of subordinated liabilities compared to the nominal value ensues from some of the bonds issued by Alior Bank were subscribed for by consolidated mutual funds.

8.32 Liabilities on the issue of own debt securities

Liabilities on the issue of own debt securities		31 March 2020		31 December 2019
	Bonds		2,942		3,976
Certificates of deposit	3,564	3,940
	Covered bonds		1,363		1,357
Total liabilities on the issue of own debt securities	7,869	9,273

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.33 Liabilities to banks

Liabilities to banks	31 March 2020	31 December 2019
Current deposits	935	412
One-day deposits	681	419

Term deposits	42	41
Loans received	5,525	5,427

Other liabilities	439	305
Total liabilities to banks	7,622	6,604

8.34	Liabilities to clients under deposits

Liabilities to clients under deposits		31 March 2020		31 December 2019
	Current deposits		164,816		151,417
Term deposits	62,146	66,414
	Other liabilities		772		757
Total liabilities to clients under deposits	227,734	218,588

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.35	Other liabilities

Other liabilities		31 March 2020		31 December 2019
Liabilities measured at fair value		749		642
Liabilities on borrowed securities (short sale)	417	293

Investment contracts for the client's account and risk (unit-linked)		226		259
Liabilities to members of consolidated mutual funds	106	90

Financial liabilities measured at amortized cost		10,488		9,734
Accrued expenses	1,514	1,979

	Accrued expenses of agency commissions		381		390
	Accrued payroll expenses	214	217

	Accrued reinsurance expenses		219		706
	Accrued employee bonuses	376	367

	Other		324		299
Deferred revenue	346	322
Other liabilities		8,628		7,433
	Liabilities on account of repurchase transactions	495	599

	Lease liabilities		1,129		1,066
	Liabilities due under transactions on financial instruments	1,177	905

	Liabilities to banks for payment documents cleared in interbank clearing systems		1,116		1,096
	Liabilities on direct insurance	956	892

	Liabilities on account of payment card settlements		304		408
	Regulatory settlements	371	289

	Liabilities for contributions to the Bank Guarantee Fund		647		356
	Reinsurance liabilities	604	197

	Estimated non-insurance liabilities		84		161
	Liabilities to employees	62	47
	Estimated refunds of compensation in connection with banks' clients lapsing or		65		69
	withdrawing from insurance purchased during the sale of credit products

	Trade liabilities	483	258

	Current income tax liabilities		401		352
	Liabilities to the state budget other than for income tax	129	182

	Liabilities on account of donations		20		23
	Alior Bank's liabilities for insurance of bank products offered to the bank's clients	14	12

	Insurance Indemnity Fund		14		15
	Liabilities for reimbursement of loan costs	106	106
	Liabilities to the State Fire Service and Voluntary Fire Service		16		6
	Liabilities for direct claims handling	28	29
	Other		407		365
Total other liabilities	11,237	10,376

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

8.36	Other provisions
Movement in other provisions in the period		Beginning of		Increase		Utilization		Dissolution		Other		End of the

ended 31 March 2020		the period					changes		period


	Provisions for guarantees and sureties given		358		115		-		(60)		3		416
Provision for disputed claims and potential	80	2	(11)		-		-	71
liabilities

	Provision of potential refunds of borrowing		254		-		(120)		-		-		134
	costs

Provision for legal risk pertaining to mortgage	22	-	-		(1)		-	21
loans in Swiss francs

	Provision for the Office of Competition and		85		-		-		-		-		85
	Consumer Protection penalties

Provision for restructuring expenses	34	144	(22)		-		-	156

	Other			34		2		(5)		-		-		31
Total other provisions	867	263	(158)		(61)		3	914

Movement in other provisions in the period		Beginning of		Increase		Utilization		Dissolution		Other		End of the
ended 31 December 2019		the period					changes		period

	Provisions for guarantees and sureties given		316		331		-		(289)		-		358
Provision for disputed claims and potential	67	48	(26)	(12)	3	80
liabilities


	Provision of potential refunds of borrowing		-		272		(18)		-		-		254
	costs

Provision for legal risk pertaining to mortgage	-	22	-	-	-	22
loans in Swiss francs


	Provision for the Office of Competition and		85		-		-		-		-		85
	Consumer Protection penalties

Provision for restructuring expenses	20	85	(78)			7	34
	Other			31		16		(8)		(5)		-		34
Total other provisions	519	774	(130)	(306)	10	867

Provision of potential refunds of borrowing costs

On 11 September 2019, the CJEU judgment in case C-383/18 was published. In its ruling, the CJEU stated that Article 16(1) of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC should be interpreted as meaning that the consumer's right to reduce the total cost of credit in the event of an early repayment includes all costs that have been imposed on the consumer.

The Court ruled unambiguously that a credit prepayment entitles the consumer to a reduction in all costs included in the total cost of credit. However, the judgment did not specify the method of calculation of such a reduction in respect of non-recurring costs, such as commissions and preparation fees.

The formula approved by the President of UOKiK and the Financial Ombudsman for the settlement of credit costs with borrowers is the so-called linear formula whereby a pro rata approach is adopted based on the period between the actual loan repayment date and the repayment date specified in the loan agreement and requires that any non-recurring cost be broken down on a pro rata basis across all payment periods. However, due to the absence of legal regulations in this respect, the practice in such situations may vary.

In connection with the CJEU judgment, the PZU Group has estimated the effects of the legal risk resulting from early repayment of consumer loans made before the date of the CJEU judgment and recognized a provision in the amount of PLN 134 million as at 31 March 2020. Its amount corresponds to the best possible estimate based on historical data on early repayments of consumer loans and on the observed historical number of received complaints regarding the pro rata refund of commissions, including in the period following the CJEU ruling, as well as taking into account the expectation of trends in the number of future complaints. The estimation of the provision has required adoption of a number of expert assumptions and entails a significant uncertainty following from, among others, the short observation period and the difficult to estimate volatility of the observed

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

trends pertaining to the number and amounts of lodged complaints. For this reason the provision amount will be subject to updates in the next periods, depending on the number of complaints and amounts to be refunded.

Provision for legal risk pertaining to FX mortgage loans in Swiss francs

On 3 October 2019, CJEU issued a ruling regarding the effects of possible abusiveness of the provisions of an individual agreement on a CHF-indexed loan granted by one of the banks. CJEU interpreted the provisions of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts in the context of the CHF-indexed loan agreement. CJEU specified the effects of declaring the possible abusiveness of the conversion clauses by the national court, without analyzing at all the possible abusiveness of the contractual provisions. CJEU did not rule that if the national court deems a clause abusive, then it should automatically declare the entire agreement invalid. An assessment in this respect is up to the national court, however CJEU did not rule out the possibility of supplementing the gap resulting from the abusiveness of the conversion clauses using national supplementary provisions.

The CJEU ruling provides general guidance for Polish common courts. The ultimate resolutions made by Polish courts will be based on EU regulations interpreted in accordance with the CJEU judgment, taking into consideration the national laws and analysis of the individual circumstances of each case. At this point, there is no established line of rulings in cases pertaining to CHF mortgage loans, which is confirmed by frequently contradictory rulings of common courts and legal queries asked to CJEU and Supreme Court aimed at dispelling the courts' doubts.

Considering the increasing numbers of lawsuits pertaining to CHF mortgage loans observed in the banking sector and the lack of consistency in the line of rulings pertaining to such loans, the PZU Group has estimated a provision for the legal risk associated with CHF mortgage loan agreements in the total amount of PLN 59 million as at 31 March 2020, out of which PLN 21 million for exposures that have already been repaid as at the balance sheet date (which is posted to "Other provisions") and PLN 38 million of exposures outstanding as at the balance sheet date, recognized as an element of allowances for expected credit losses and impairment losses in financial instruments.

The amount of the provision for pending disputable cases is determined on the basis of legal opinions pertaining to assessment of the CHF mortgage loan agreement templates and on a case-by-case assessment (for each statement of claim) of the risk of losing the given case in court, taking into account the nature of the claims and the possible financial effects.

In addition, as at 31 March 2020, the PZU Group estimated the portfolio provision for future possible statements of claim, whose value is based on an assessment of the legal risk. Calculating the provision amount, the PZU Group estimates the value of the portfolio for which future statements of claim may be filed challenging the loan agreement, the probability of losing future court cases, and the possible financial effects of losing court cases, taking into account the possibility of:

invalidating the entire CHF mortgage loan agreement as a result of recognizing the indexation clause as abusive,
recognizing the clauses contained in the loan agreement as abusive clauses resulting in determining the loan balance in PLN and leaving the loan interest rate based on the LIBOR rate (the so-called currency conversion of a CHF loan agreement),
recognizing the indexation clause as abusive and replacing it with the average NBP exchange rate,
dismissing the statement of claim.

Considering the inconsistent line of rulings pertaining to CHF mortgage loans and the relatively short, for court proceedings, period for which historical data is available for court cases associated with such loans, the estimation of the provision required making expert assumptions by the PZU Group and entailed a significant uncertainty. The PZU Group will monitor the impact of the CJEU ruling on the directions of decisions made by Polish courts, the market practice and the behaviors of borrowers, and will update all assumptions made in the provisioning process.

Provisions for guarantees and sureties given

This item includes provisions recognized by banks for the potential loss of economic benefits resulting from off-balance sheet exposures (e.g. granted guarantees or credit exposures).

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Provision for the Office of Competition and Consumer Protection penalties

The amount of PLN 57 million pertains to the penalty imposed on PZU in the proceedings of the President of the Office of Competition and Consumer Protection. Additional information on this matter is presented in section 22.2.

The amount of 28 million pertains to a penalty returned by the Office of Competition and Consumer Protection to Pekao. Due to the potential risk of outflow of resources in connection with this case the PZU Group has not recognized the revenue on account of the refunded resources but recognized a provision.

Provision for restructuring expenses

The Management Board of Pekao reported that on 20 February 2020, in accordance with the provisions of the Act on the Rules for Terminating Employment Relationships, it adopted a resolution concerning the intention of conducting group layoffs and commencing the consultation procedure on group layoffs.

The Pekao Management Board intends to terminate employment contracts with a maximum of 1,200 employees and modify employment conditions for a maximum of 1,350 employees in the period from 13 March 2020 to 31 October 2020, while Pekao can take a unilateral decision to extend the process by no more than 5 months.

The total costs related to the termination of employment contracts and to the modification of the employment conditions of Pekao employees under group layoffs and the restructuring of the branch network has been estimated at PLN 144 million and the restructuring provision in this amount has been recognized for this purpose.

The remaining balance is made up of:

PLN 10 million - pertaining to the restructuring process conducted in PZU and PZU Życie (PLN 10 million as at 31 December
2019);
PLN 2 million - pertaining to the restructuring processes in Alior Bank (as at 31 December 2019: PLN 5 million).

8.37 Notes to the consolidated statement of cash flows

							Accruals and
Movement in liabilities						interest
			Changes		payments as		Foreign
attributable to financial		Beginning of							End of the
		resulting from		well as		exchange		Other changes
activities in the period ended		the period						period
		cash flows		settlements of		differences
31 March 2020
					discount and

							premium

	Loans received		5,427		(242)		2		338	-	5,525
Liabilities on the issue of debt	9,273	(1,437)	12	21	-	7,869
securities

	Bonds		3,976		(1,041)		7		-	-	2,942
	Certificates of deposit	3,940	(384)	5	3	-	3,564

	Covered bonds		1,357		(12)		-		18	-	1,363
Subordinated liabilities	6,700	(29)	40	3	-	6,714

	Liabilities on account of		599		(104)		-		-	-	495
	repurchase transactions

Lease liabilities	1,066	(71)	19	-	115	1,129
	Total financial liabilities		23,065		(1,883)		73		362	115	21,732

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

									Accruals and
					Recogni-				interest		Change in
Movement in liabilities					Changes		payments as		Foreign
	Beginning		tion of					the
attributable to financial				resulting		well as		exchange		Other	End of the
	of the		lease					composi-
activities in the period ended				from cash		settlements		difference		changes	period
	period		liabilities					tion of the
31 December 2019				flows		of discount		s
			(IFRS 16)					Group
								and

									premium

	Loans received		4,386		-		938		6	33	53	11	5,427
Liabilities on the issue of debt	12,009	-	(2,828)	103	(1)	-	(10)	9,273
securities

	Bonds		5,922		-		(2,022)		74	2	-	-	3,976
	Certificates of deposit	4,542	-	(631)	29	-	-	-	3,940

	Covered bonds		1,545		-		(175)		-	(3)	-	(10)	1,357
Subordinated liabilities	6,061	-	453	176	-	10	-	6,700

	Liabilities on account of		540		-		55		4	-	-	-	599
	repurchase transactions

Liabilities for borrowings	-	-	(5)	-	-	5	-	-
	Lease liabilities		10		1,301		(297)		(24)	(1)	23	54	1,066
Total financial liabilities	23,006	1,301	(1,684)	265	31	91	55	23,065

9. Assets securing receivables, liabilities and contingent liabilities

Assets securing liabilities and contingent liabilities include primarily mortgage-backed bonds and receivables (in the case of mortgage bond issues) and cash deposits (in the case of coverage of the Settlement Guarantee Fund for the National Depository for Securities). The table presents the carrying amount of the collateral, by type of secured liability.

Financial assets pledged as collateral for liabilities and contingent liabilities		31 March 2020		31 December 2019
	Carrying amount of financial assets pledged as collateral for liabilities		8,622		10,522
	Repurchase transactions	495	598

	Coverage of the Guaranteed Funds Protection Fund for the Bank Guarantee Fund		933		938
	Coverage of liabilities to be paid to the guarantee fund at the Bank Guarantee Fund	147	122
	Coverage of liabilities to be paid to the mandatory restructuring fund (BFG)		307		302
	Lombard and technical credit	3,779	5,758
	Other loans		704		709
	Issue of covered mortgage bonds	1,924	1,872
	Coverage of the Settlement Guarantee Fund for the National Depository for Securities		48		33
	Derivative transactions	285	190

	Carrying amount of financial assets pledged as collateral for contingent liabilities		-		-
Total financial assets pledged as collateral for liabilities and contingent liabilities	8,622	10,522

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

10. Contingent assets and liabilities

Contingent assets and liabilities	31 March 2020	31 December 2019
Contingent assets, including:	6	6
- guarantees and sureties received	6	6

Contingent liabilities	58,298	59,437
- for renewable limits in settlement accounts and credit cards	10,346	10,603

- for loans in tranches	29,228	29,867
- guarantees and sureties given	9,764	9,782

- disputed insurance claims	649	773
- other disputed claims	212	212

- other, including:	8,099	8,200
- guaranteeing securities issues	3,616	3,636

- factoring	3,317	3,300
- intra-day limit	364	339
- letters of credit and commitment letters	621	732
- other	181	193

Granting of sureties or guarantees for loans or borrowings by PZU or its subsidiaries

In the 3-month period ended 31 March 2020 and 2019, neither PZU nor its subsidiaries granted any sureties for a loan or borrowing or guarantees to any single entity or any subsidiary of such an entity where the total amount of outstanding sureties or guarantees would be significant.

11. Commentary to the condensed interim consolidated financial statements

In the 3-month period ended 31 March 2020, gross written premium was PLN 6,097 million compared to PLN 5,901 million in the same period last year (+3.3%). The increase in sales applied above all to the following:

growth of sales of unit-linked insurance products offered jointly with the banks;
ADD and other insurance, driven by growth of the insurance portfolio offered in strategic partnership in TUW PZUW, and by growth of insurance sales offered in cooperation with the PZU Group's banks as an addition to mortgage loans and cash loans and provision of an insurance cover for physicians and medical personnel against COVID-19 infection;
growth of the group health product portfolio;
active upsales of insurance riders in individually continued products.

The increases were partially offset by lower premiums in motor insurance resulting among others from persistently strong price pressure and lower sales of insurance offered by leasing companies.

Investment income including interest expenses in Q1 2020 and Q1 2019 was: PLN 1,371 million and PLN 2,493 million, respectively. A decline in investment income generated in banking activity and net of banking activity. In banking activity, the lower result was caused in particular by the recognition in Q1 2020 of an additional provision for the anticipated deterioration of credit portfolio quality in Pekao and a negative effect of the CJEU judgment in the matter of consumer loans. The effect was partially offset by the increase in the volume of loans to clients.

Income on investing activity, excluding banking business2, fell mainly due to worse performance on listed equities, in particular by the deterioration of market conditions in connection with the COVID-19 pandemic, translating among others into investment performance in the portfolio of assets to cover investment products that have no effect on the PZU Group's overall net result.

2 Banking activity: data of Pekao and Alior Bank

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Net claims and benefits (including the movement in technical provisions) were PLN 3,281 million, or 17.1% less than in the same period last year. The following factors contributed to the decline in the category of net claims and benefits:

in life insurance, the lower investment result on most unit-linked product portfolios compared to the results generated last year and lower payments of benefits in protection products;
lower loss ratio in the portfolio of insurance against fire and other damage to property - in the corresponding period of 2019 there were several high value claims, including claims on inward reinsurance of TUW PZUW, which reduced the result by nearly PLN 28 million, as well as claims due to gusty wind.

On the other hand, net claims and benefits increased in the non-motor insurance portfolio, in particular in general liability insurance - in the corresponding period of 2019 claims and benefits were lower in the medical center insurance portfolio.

In Q1 2020 acquisition expenses rose by PLN 42 million relative to the same period last year. The increase was driven mainly by a change in the structure of products and sales channels in PZU.

PZU Group's administrative expenses in Q1 2020 totaled PLN 1,679 million compared to PLN 1,620 million in the corresponding period of 2019, or they were PLN 59 million higher than in the previous year.

Administrative expenses in the banking activity segment (net of adjustments on account of valuation of assets and liabilities to fair value) increased by PLN 14 million (+1.2%). The key contributor were Pekao's personnel costs. At the same time, the administrative expenses of the insurance segments in Poland were PLN 30 million higher compared to the previous year. This change largely resulted from higher personnel costs in connection with the wage pressure on the market.

In Q1 2020, the balance of other operating income and expenses was negative and amounted to PLN 1,466 million compared with the also negative balance for 2019 of PLN 1,012 million. The following factors had an impact on this result:

non-recurringeffect of an impairment loss on the goodwill arising from the acquisition of Alior Bank in the amount of PLN 516 million;
lower fees paid to the Bank Guarantee Fund falling from PLN 515 million in Q1 2019 to PLN 339 million in 2020 due to the lower fee for forced reorganization;
recognition of a restructuring provision in Pekao;
levy on financial institutions - the PZU Group's liability on account of this levy (in both insurance and banking activity) in Q1
2020 was PLN 291 million compared to PLN 285 million in the previous year.

Operating profit in Q1 2020 was PLN 656 million, down by PLN 833 million (-55.9%) compared to the result in the same period last year. This movement resulted in particular from:

lower investment income as a result of a decrease in the result on listed equities, in connection with worse economic conditions caused by the COVID-19 pandemic;
higher profitability of the mass insurance segment (+PLN 31 million) driven by the lower loss ratio in non-motor insurance, including a lower level of losses caused by weather events;
higher underwriting result in the corporate insurance segment (+PLN 21 million) due to improved profitability in the motor insurance portfolio, higher income on investments allocated to the segment, while the sales level was about the same and the loss ratio increased in the property insurance portfolio;
higher profitability in group and individually continued insurance (+PLN 102 million) with a growing health insurance portfolio as a result of a decrease in the loss ratio on certain risks in the group protection portfolio and higher operating expenses;
slightly higher result on individual insurance (+PLN 3 million) due to the expanding insurance portfolio, mainly bancassurance, with higher operating expenses;
lower results in the banking activity segment (-PLN 682 million), among others in connection with the impairment loss on the goodwill arising from the acquisition of Alior Bank in the amount of PLN 516 million, recognition in Q1 2020 of an additional provision for projected deterioration of credit portfolio quality in Pekao in the amount of approximately PLN 200 million and a negative effect of the CJEU judgment on consumer loans. These effects were partially offset by lower payments to the Bank Guarantee Fund in Q1 2020.

Net profit fell relative to Q1 2019 by PLN 723 million (-71.4%) to PLN 289 million. The net profit attributable to shareholders of the parent company was PLN 116 million, compared to PLN 747 million in 2019 (down 84.5%).

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

As at 31 March 2020, consolidated equity according to IFRS was PLN 39,642 million compared to PLN 38,548 million as at 31 March 2019. Growth pertained to the equity attributable to the parent company's shareholders and non-controlling interests. The return on equity attributable to the parent company (ROE3) for the period from 1 January 2020 to 31 March 2020 was 2.9%, down 16.6 p.p. from the same period last year. In comparison with consolidated equity as at 31 December 2019, equity climbed PLN 354 million. The value of non-controlling interests increased compared to the end of the previous year by PLN 324 million to reach PLN 23,443 million, its movement driven by the result attributable to non-controlling shareholders of PLN 173 million (generated by Alior Bank and Pekao), a decrease in the valuation of debt and an increase in hedging derivatives measured at fair value through other comprehensive income. Equity attributable to the parent company's shareholders rose by PLN 30 million compared to the end of the previous year, as an effect of the net result attributable to the parent company earned in Q1 2020 in the amount of PLN 116 million, lower valuation of debt instruments and an increase in hedging derivatives measured at fair value through other comprehensive income.

Total equity and liabilities as at 31 March 2020 increased compared to 31 December 2019 by PLN 13,875 to PLN 357,215 million. The increase pertained mainly to the liabilities to clients under deposits item (+PLN 9,146 million).

The investment portfolio4 as at 31 March 2020, excluding the impact of the banking business, was PLN 49,558 million compared to PLN 49,689 million as at and 31 December 2019. The change in the value of the investment portfolio was due to the lower valuation of mainly equity instruments constituting coverage of investment products, which was partially offset by the increased premium receipts in the beginning of the year and the investment result. Loan receivables as at 31 March 2020 were PLN 198,849 million compared to PLN 194,868 million as at 31 December 2019.

The largest component of equity and liabilities at the end of Q1 2020 were liabilities to clients under deposits accounting for 63.8%. They increased by PLN 9,146 million to PLN 227,734 million driven by current deposits from clients. At the same time, liabilities to banks, including current deposits, also went up.

The value of technical provisions at the end of Q1 2020 was PLN 47,180 million and accounted for 13.2% of total equity and liabilities. Compared to 31 December 2019, provisions fell by PLN 149 million. This change resulted primarily from the following:

lower provisions in unit-linked life insurance products due to the negative result on investment activity;
an increase in the provision for unearned premiums in non-life insurance resulting from expanding insurance sales;

12. Capital management

On 3 October 2016 PZU Supervisory Board adopted a resolution to approve the PZU Group's capital and dividend policy for 2016- 2020 ("Policy").

In accordance with the Policy, the PZU Group endeavors to do the following:

manage capital effectively by optimizing the usage of capital from the PZU Group's perspective;
maximize the rate of return on equity for the parent company's shareholders, in particular by maintaining the level of security and retaining capital resources for strategic growth objectives through acquisitions;
ensure sufficient financial means to cover the PZU Group's liabilities to its clients.

The capital management policy rests among others on the following principles:

the PZU Group's capital management (including excess capital) is conducted at the level of PZU as the parent company;
sustain target solvency ratios at the level of 200% for the PZU Group, PZU and PZU Życie (according to Solvency II);
maintain the PZU Group's financial leverage ratio at a level no higher than 0.35;

Annualized ratio
The investment portfolio contains investment financial assets (including investment products), investment properties (including the part presented in the category of assets held for sale) financial derivatives along with the negative valuation derivatives and liabilities arising from repurchase transactions.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

ensure funds for growth and acquisitions in the coming years;
PZU will not issue any new shares for the duration of this Policy. The PZU Group and PZU dividend policy assumes that:
the dividend amount proposed by the PZU Management Board for the financial year is determined on the basis of the PZU
Group's consolidated financial result attributable to the parent company, where:
- no more than 20% will be earmarked as retained earnings (supplementary capital) for goals associated with organic growth and innovations as well as execution of growth initiatives;
- no less than 50% is subject to payment as an annual dividend;
- the remaining part will be paid in the form of annual dividend or will increase retained earnings (supplementary capital) if in the given year significant expenditures are incurred in connection with execution of the PZU Group Strategy, including in particular, mergers and acquisitions;

subject to the items below:

according to the PZU Management Board's plans and risk and solvency self-assessment of the parent company, the own funds of the parent company and the PZU Group following the declaration or payment of a dividend will remain at a level that will ensure fulfillment of the conditions specified in the capital policy;
when determining the dividend the regulatory authority's recommendations concerning dividends will be taken into consideration.

External capital requirements

According to the Insurance Activity Act, the calculation of the capital requirement is based on market, actuarial (insurance), counterparty insolvency, catastrophic and operational risks. Assets, liabilities and as a consequence own funds covering the capital requirement are measured at fair value. The capital requirement is calculated in accordance with the standard formula at the level of the entire PZU Group.

Pursuant to Article 412 section 1 of the Insurance Activity Act, the PZU Group is obligated to prepare and disclose an annual solvency and financial condition report at the group level drafted in accordance with the principles of Solvency II. The 2019 report published on 28 May 2020 is available online at https://www.pzu.pl/relacje-inwestorskie/informacje-finansowe.Pursuant to Article 290 section 1 of the Insurance Activity Act, a solvency and financial condition report of an insurance undertaking is audited by an audit firm.

Irrespective of the above, some PZU Group companies are obligated to comply with their own capital requirements imposed by the relevant legal regulations.

The PZU Group's solvency ratio as at 31 December 2019 published in the PZU Group's 2019 solvency and financial condition report was 245%.

The maintained levels of solvency ratio comply with those assumed in the capital policy of the PZU Group.

13. Segment reporting

13.1 Reportable segments

13.1.1. Key classification criterion

Operating segments are components of an entity for which separate financial information is available and is subject to regular assessment by CODM (in practice this is the PZU Management Board), related to allocating resources and assessing operating results.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

The main dividing line between segments in the PZU Group is based on the criteria of the nature of business, product groups, client groups and the regulatory environment. The characteristics of individual segments is provided in the table below.

Segment

Accounting

Segment description

Aggregation criteria

standards

Aggregation by similarity of

Corporate

products

offered,

similar

Broad scope of property insurance products, TPL and motor insurance

client

groups

to which they

insurance

PAS

customized to a customer's needs entailing individual underwriting

are

offered,

distribution

(non-life

offered to large economic entities by PZU, Link4, TUW PZUW.

channels and operation in the

insurance)

same

regulatory

environment.

Mass insurance

Broad scope of property, accident, TPL and motor insurance products

(non-life

PAS

offered to individual clients and entities in the small and medium

As above.

insurance)

corporate sector by PZU and Link4.

Group insurance addressed by PZU Życie to groups of employees and

Group and

other formal groups (e.g. trade unions), under which persons under a

legal relationship with the policyholder (e.g. employer, trade union) enroll

individually

in the insurance and individually continued insurance in which the

continued

PAS

No aggregation

policyholder acquired the right to individual continuation during the

insurance

group phase. PZU Życie's offer covers a wide range of protection

(life insurance)

insurance, investment insurance (which are not investment contracts)

and health insurance products.

Insurance offered by PZU Życie to individual clients under which the

Individual

insurance contract applies to a specific insured and this insured is subject

insurance

PAS

to individual underwriting. PZU Życie's offer covers a wide range of

No aggregation

(life insurance)

protection insurance, investment insurance (which are not investment

contracts) and health insurance products.

The segment includes:

1. investments of the PZU Group's own funds, understood as the surplus

of investments over technical provisions in PZU, Link4 and PZU Życie

The aggregation was effected

plus the surplus of income earned over the risk-free rate on

because

the

similar

Investments

PAS

investments reflecting the value of technical provisions in insurance

surplus-based

nature

of the

products, i.e. surplus of investment income allocated at transfer prices

revenues

to insurance segments;

2. income from other free funds in the PZU Group (in particular

consolidated mutual funds).

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

	Segment		Accounting		Segment description		Aggregation criteria
		standards

							The aggregation was carried
							out due to similarity of
					Broad range of banking products offered both to corporate and retail		products and services offered
Banking activity		IFRS			by the companies and the
		clients by the Pekao Group and the Alior Bank Group.
						identical regulatory

							environment of their
							operations.

	Pension		PAS		2nd pillar pension insurance		No aggregation
	insurance

							The aggregation was carried
							out due to similarity of
					Non-life insurance and life insurance products offered by LD and its		products and services offered
Baltic States		IFRS			by the companies and
		branch in Estonia, AAS Balta and PZU LT GD.
						similarity of the regulatory

							environment of their
							operations.

							The aggregation was carried
	Ukraine		IFRS		Non-life and life insurance products offered by PZU Ukraine and PZU		out due to similarity of the
			Ukraine Life Insurance.		regulatory environment of

							their operations.
					PZU Życie products that do not transfer significant insurance risk within
Investment		PAS		the meaning of IFRS 4 and that do not meet the definition of an insurance		No aggregation
contracts			contract (i.e. some products with a guaranteed rate of return and some

					unit-linked products).

	Other		PAS / IFRS		Other products and services not classified into any of the above
			segments.

13.1.2. Information relating to geographical areas

The PZU Group applies additional segmentation by geographic location, according to which the following geographic areas were identified:

Poland;
Baltic states;
Ukraine.

13.2 Inter-segment settlements

The net result of investments (the difference between realized and unrealized revenues and costs) carried in corporate insurance (non-life), mass insurance (non-life), group and individually continued insurance (life), individual insurance (life) is determined on the basis of transfer prices using interest rates from the yield curves for treasuries. For unit-linked insurance products, guaranteed rate products and structured products the net result of investments covering the technical provisions corresponding to them is carried directly.

13.3 Segment's measure of profit

The PZU Group's fundamental measure of a segment's profit is as follows:

in the case of corporate, mass, group, individually continued and individual insurance segments - insurance result, which is the financial result before tax and other operating income and expenses (including financial costs), however including investment income (corresponding to the value of technical provisions) determined using the risk-free rate. The insurance result is a measure approximately equivalent to the technical result defined in PAS, taking into account the difference in the recognition of the net result on investments as described in the previous sentence;

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

in the case of the investment segment - the investment result of PZU Group companies less the result allocated to insurance segments and adjusted for dividends received from subsidiaries and valuation of subsidiaries by the equity method (conducted in accordance with PAS);
in the case of investment contracts - the operating result, calculated in the manner approximately equivalent to the technical result in accordance with PAS;
in the case of banking activity and foreign insurance activity - the operating result according to local accounting standards in the country of the company's registered offices or according to IFRS, which is the financial result before tax.

13.4 Accounting policies applied according to PAS

13.4.1. PZU

PAS and the differences between PAS and IFRS in respect of PZU's standalone financial reporting are presented in detail in the PZU's standalone financial statements for 2019.

PZU's 2019 standalone financial statements are available on the PZU website at www.pzu.plin the "Investor Relations" tab.

13.4.2. PZU Życie

The accounting standards according to PAS applicable to PZU Życie are convergent with the PAS applicable to PZU.

What is unique to PZU Życie is the rules of accounting for insurance agreements and investment contracts according to IFRS.

The fundamental difference between PAS and IFRS in respect of accounting for insurance agreements and investment contracts at PZU Życie is the classification of contracts. There is no term "investment contract" in PAS, as a consequence of which all agreements are classified as insurance agreements. According to IFRS agreements are classified according to the guidelines set forth under IFRS 4 on the classification of products as insurance contracts (subject to IFRS 4) or investment contracts (measured according to IAS 9). In the case of the latter the written premium is not recognized.

13.5 Simplifications in the segmental note

The segmental note has applied certain simplifications permitted by IFRS 8. The justification for their usage is portrayed below:

withdrawing from presenting data related to the allocation of all assets and liabilities to various segments - resulting from not preparing and not presenting such tables to the PZU Management Board. The main information delivered to the PZU Management Board consists of data regarding the results of given segments and managerial decisions are made on this basis, including decisions on resource allocation. The analysis of the segmental allocation of assets and liabilities is limited to a large extent to monitoring the fulfillment of the regulatory requirements;
presenting the net result on investments as a single amount as the difference between the realized and unrealized revenues and the costs of investments - stemming from the internal assessment of the segmental results based on such a combined measure of investment results;
not allocating other revenues and costs to the segment called "investments" besides realized and unrealized revenues and costs of investments - stemming from the method of analyzing this segment's data and the impracticality of such an allocation.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

13.6	Quantitative data
Corporate insurance (non-life insurance)		1 January -		1 January -

	31 March 2020		31 March 2019


	Gross written premium - external		666		670
Gross written premium - cross-segment	7	1

	Gross written premiums		673		671
Movement in provision for unearned premiums and gross provision for unexpired risks	101	55

	Gross earned premium		774		726
Reinsurers' share in gross written premium	(124)	(49)
	Reinsurer's share in the movement in provision for unearned premiums and the gross		(49)		(76)
	provision for unexpired risk

Net earned premium	601	601

	Investment income, including:		43		25
	external operations	43	25

	intersegment operations		-		-
Other net technical income	23	9
	Income			667		635

	Net insurance claims and benefits		(386)		(382)
Movement in other net technical provisions	-	-
	Acquisition expenses		(129)		(125)
Administrative expenses	(36)	(30)

	Reinsurance commissions and profit participation		10		10

	Other			(20)		(23)
Insurance result	106	85
Mass insurance (non-life insurance)		1 January -		1 January -

	31 March 2020		31 March 2019


	Gross written premium - external		2,755		2,683
Gross written premium - cross-segment	7	4

	Gross written premiums		2,762		2,687
Movement in provision for unearned premiums and gross provision for unexpired risks	(220)	(161)

	Gross earned premium		2,542		2,526
Reinsurers' share in gross written premium	(9)	(35)
	Reinsurer's share in the movement in provision for unearned premiums and the gross		(13)		13
	provision for unexpired risk

Net earned premium	2,520	2,504

	Investment income, including:		170		120
	external operations	170	120

	intersegment operations		-		-
Other net technical income	34	48

	Income			2,724		2,672

	Net insurance claims and benefits		(1,529)		(1,548)
Movement in other net technical provisions	-	-
	Acquisition expenses		(492)		(475)
Administrative expenses	(166)	(152)

	Reinsurance commissions and profit participation		(1)		-

	Other			(115)		(107)
Insurance result	421	390

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Group and individually continued insurance (life insurance)		1 January -		1 January -
	31 March 2020		31 March 2019

	Gross written premium - external		1,759		1,733
Gross written premium - cross-segment	-	-

	Gross written premiums		1,759		1,733
Movement in the provision for unearned premiums	(1)	(1)

	Gross earned premium		1,758		1,732
Reinsurers' share in gross written premium	-	-

	Reinsurer's share in the movement in provision for unearned premiums and the gross		-		-
	provision for unexpired risk

Net earned premium	1,758	1,732
	Investment income, including:		25		176
	external operations	25	176

	intersegment operations		-		-
Other net technical income	1	1

	Income		1,784		1,909

	Net insurance claims and benefits and movement in other net technical provisions		(1,121)		(1,364)
Acquisition expenses	(97)	(90)

	Administrative expenses		(158)		(151)

	Other		(10)		(8)
Insurance result	398	296
Individual insurance (life insurance)		1 January -		1 January -

	31 March 2020		31 March 2019

	Gross written premium - external		416		327
Gross written premium - cross-segment	-	-
	Gross written premiums		416		327
Movement in the provision for unearned premiums	2	3

	Gross earned premium		418		330
Reinsurers' share in gross written premium	-	-

	Reinsurer's share in the movement in provision for unearned premiums and the gross		-		-
	provision for unexpired risk

Net earned premium	418	330
	Investment income, including:		(267)		192
	external operations	(267)	192
	intersegment operations		-		-
Other net technical income	1	-

	Income		152		522

	Net insurance claims and benefits and movement in other net technical provisions		(22)		(406)
Acquisition expenses	(39)	(31)

	Administrative expenses		(20)		(17)

	Other		(1)		(1)
Insurance result	70	67

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Investments		1 January -		1 January -
	31 March 2020		31 March 2019

Investment income, including:		(142)		157
- external operations	(161)	140

- intersegment operations		19		17
Operating result	(142)	157
		1 January -		1 January -

Banking activity			31 March 2019
	31 March 2020
			(restated)

Revenue from commissions and fees		975		932
- external operations	946	910
- intersegment operations		29		22
Investment income	2,111	2,297

- external operations		2,111		2,297
- intersegment operations	-	-

Income		3,086		3,229

Fee and commission expenses		(235)		(175)
Interest expenses	(463)	(490)

Administrative expenses		(1,227)		(1,213)

Other		(1,222) 1)		(730)
Operating result	(61)	621

including impairment loss on goodwill (in the amount of PLN 516 million) arising from the acquisition of Alior Bank. Additional information on this matter is presented in section 8.16.1.

Pension insurance		1 January -			1 January -
	31 March 2020			31 March 2019

	Investment income, including:			1		1
	external operations			1	1
	intersegment operations			-		-
Other income			47	32
	Income			48		33

	Administrative expenses			(9)		(12)

	Other			(1)		(1)
Operating result			38	20

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Insurance - Baltic States		1 January -		1 January -
	31 March 2020		31 March 2019

	Gross written premium - external		423		416
Gross written premium - cross-segment	-	-

	Gross written premiums		423		416
Movement in provision for unearned premiums and gross provision for unexpired risks	9	(16)

	Gross earned premium		432		400
Reinsurers' share in gross written premium	(33)	(28)

	Reinsurer's share in the movement in provision for unearned premiums and the gross		19		14
	provision for unexpired risk

Net earned premium	418	386
	Investment income, including:		(27)		14
	external operations	(27)	14

	intersegment operations		-		-
Income	391	400


Net insurance claims and benefits	(234)	(247)

	Acquisition expenses		(86)		(81)
Administrative expenses	(35)	(31)


Other	1	1
	Insurance result		37		42
Insurance - Ukraine		1 January -		1 January -

	31 March 2020		31 March 2019

	Gross written premium - external		79		71
Gross written premium - cross-segment	-	-
	Gross written premiums		79		71
Movement in provision for unearned premiums and gross provision for unexpired risks	6	(7)

	Gross earned premium		85		64
Reinsurers' share in gross written premium	(27)	(20)

	Reinsurer's share in the movement in provision for unearned premiums and the gross		-		(2)
	provision for unexpired risk

Net earned premium	58	42
	Investment income, including:		16		8
	external operations	16	8
	intersegment operations		-		-
Income	74	50

Net insurance claims and benefits	(26)	(19)

	Acquisition expenses		(31)		(25)
Administrative expenses	(8)	(7)


Other	9	6

	Insurance result		18		5

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Investment contracts		1 January -		1 January -
	31 March 2020		31 March 2019

	Gross written premium		9		10
Movement in the provision for unearned premiums	-	-

	Gross earned premium		9		10
Reinsurers' share in gross written premium	-	-

	Reinsurer's share in the movement in the provision for unearned premiums		-		-
Net earned premium	9	10

	Investment income, including:		(29)		8
	external operations	(29)	8

	intersegment operations		-		-
Other income	-	-
	Income		(20)		18

	Net insurance claims and benefits and movement in other net technical provisions		22		(16)
Acquisition expenses	-	-

	Administrative expenses		(1)		(1)

	Other		-		-
Operating result	1	1
Other segments		1 January -		1 January -

	31 March 2020		31 March 2019


	Investment income, including:		1		-
	- external operations	1	-

	- intersegment operations		-		-
Other income	312	264

	Income		313		264

	Costs		(331)		(276)

	Other		5		3
Operating result	(13)	(9)

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Reconciliations		Net earned		Investment		Net insurance		Acquisition		Administra-		Operating
			claims and
1 January 2020 - 31 March 2020		premium		income			expenses		tive expenses		result
			benefits paid


	Corporate insurance		601		43		(386)		(129)		(36)		106
Mass insurance	2,520	170	(1,529)	(492)	(166)	421

	Group and individually continued		1,758		25		(1,121)		(97)		(158)		398
	insurance

Individual insurance	418	(267)	(22)	(39)	(20)	70

	Investments		-		(142)		-		-		-		(142)
Banking activity	-	2,111	-	-	(1,227)	(61) 1)
	Pension insurance		-		1		-		(1)		(9)		38
Insurance - Baltic States	418	(27)	(234)	(86)	(35)	37

	Insurance - Ukraine		58		16		(26)		(31)		(8)		18
Investment contracts	9	(29)	22	-	(1)	1

	Other segments		-		1		-		-		-		(13)
Total segments	5,782	1,902	(3,296)	(875)	(1,660)	873
	Presentation of investment contracts		(9)		30		(22)		-		-		-
Estimated salvage and subrogation	-	-	(2)	-	-	(2)
	Valuation of equity instruments		-		(4)		-		-		-		(4)
Measurement of properties	-	-	-	-	-	2

	Elimination of the equalization provision		-		-		-		-		-		(5)
	and prevention fund

Charges for the Company Social Benefit	-	-	-	-	(10)	(10)
Fund (ZFŚS) and actuarial costs

	Consolidation adjustments 2)		(11)		(72)		39		40		(9)		(198)
Consolidated data	5,762	1,856 3)	(3,281)	(835)	(1,679)	656

including impairment loss on goodwill (in the amount of PLN 516 million) arising from the acquisition of Alior Bank. Additional information on this matter is presented in section 8.16.1.
Consolidation adjustments ensue chiefly from the dividends paid between the various segments and the various accounting standards in which the specific reporting segments are reported (PAS and IFRS) and consolidated data (IFRS).
The sum of the following line items in the consolidated profit and loss account: "Interest income calculated using the effective interest rate", "Other net investment income", "Result on derecognition of financial instruments and investments", "Movement in allowances for expected credit losses and impairment losses on financial instruments" and "Net movement in fair value of assets and liabilities measured at fair value".

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Reconciliations		Net earned		Investment		Net insurance		Acquisition		Administra-		Operating
1 January 2019 - 31 March 2019				claims and
	premium		income			expenses		tive expenses		result
(restated)				benefits paid

	Corporate insurance		601		25		(382)		(125)		(30)		85
Mass insurance	2,504	120	(1,548)	(475)	(152)	390
	Group and individually continued		1,732		176		(1,364)		(90)		(151)		296
	insurance

Individual insurance	330	192	(406)	(31)	(17)	67

	Investments		-		157		-		-		-		157
Banking activity	-	2,297	-	-	(1,213)	621

	Pension insurance		-		1		-		(1)		(12)		20
Insurance - Baltic States	386	14	(247)	(81)	(31)	42
	Insurance - Ukraine		42		8		(19)		(25)		(7)		5
Investment contracts	10	8	(16)	-	(1)	1
	Other segments		-		-		-		-		-		(9)
Total segments	5,605	2,998	(3,982)	(828)	(1,614)	1,675

	Presentation of investment contracts		(11)		(5)		16		-		-		-
Estimated salvage and subrogation	-	-	(1)	-	-	(1)

	Valuation of equity instruments		-		4		-		-		-		4
Measurement of properties	-	-	-	-	(1)	-

	Elimination of the equalization provision		-		-		-		-		-		(13)
	and prevention fund

Consolidation adjustments 1)	(2)	21	9	35	(5)	(176)
	Consolidated data		5,592		3 0182)		(3,958)		(793)		(1,620)		1,489

Consolidation adjustments ensue chiefly from the dividends paid between the various segments and the various accounting standards in which the specific reporting segments are reported (PAS and IFRS) and consolidated data (IFRS).
The sum of the following line items in the consolidated profit and loss account: "Interest income calculated using the effective interest rate", "Other net investment income", "Result on derecognition of financial instruments and investments", "Movement in allowances for expected credit losses and impairment losses on financial instruments" and "Net movement in fair value of assets and liabilities measured at fair value".

					1 January - 31 March 2020						1 January - 31 March 2019
					Baltic				Un-		Consoli-			Baltic		Un-	Consoli-
			Poland			Ukraine			dated		Poland		Ukraine		dated
				States			allocated				States		allocated
											value						value
Gross written premium -	5,595	423	79	-	6,097	5,414	416	71	-	5,901
external


	Gross written premium -		6		-		-		(6)		-	3		-	-	(3)	-
	cross-segment

Revenue from	1,019	-	-	-	1,019	961	-	-	-	961
commissions and fees


	Investment income 1)		1,867		(27)		16		-		1,856	2,996		14	8	-	3,018

The sum of the following line items in the consolidated profit and loss account: "Interest income calculated using the effective interest rate", "Other net investment income", "Result on derecognition of financial instruments and investments", "Movement in allowances for expected credit losses and impairment losses on financial instruments" and "Net movement in fair value of assets and liabilities measured at fair value".

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

				31 March 2020						31 December 2019
				Baltic				Un-		Consoli-			Baltic		Un-	Consoli-
		Poland			Ukraine			dated		Poland		Ukraine		dated
			States			allocated				States		allocated
										value						value
Non-current assets, other	7,033	266	6	-	7,305	7,069	247	6	-	7,322
than financial assets 1)

Deferred tax assets		2,409		-		3		-		2,412	2,310		-	3	-	2,313
Assets	354,912	3,101	600	(1,398)	357,215	341,327	2,877	596	(1,460)	343,340

13.7 Information on key customers

Due to the nature of operations undertaken by PZU Group companies, there are no customers that would provide 10% or more of total revenues of the PZU Group (defined as gross written premium).

14. Commentary to segment reporting and investing activity

14.1 Corporate insurance - non-life insurance

In Q1 2020, in the corporate insurance segment, gross written premium increased by PLN 2 million (+0.3% y/y) as compared to

Q1 2019. The following factors were recorded concerning premiums:

upswing in the premium for ADD and other insurance (+84.4% y/y), mainly as a result of developing the portfolio of insurance products offered as part of the strategic partnership in TUW and higher premiums in cargo insurance;
increase in sales of insurance against fire and other damage to property (+4.0% y/y) and general liability insurance as a result of acquiring more high-value agreements;
drop in premium on motor insurance (-14.3% y/y) driven by continuing strong price pressure and lower sales of insurance offered by leasing companies (due to slower sales of new vehicles and worse financial condition of companies in the transport sector).

Data from the profit and loss account - corporate insurance		1 January -		1 January -		% change
(non-life insurance)		31 March 2020		31 March 2019


	Gross written premiums		673		671		0.3%
Net earned premium	601	601	0.0%

	Investment income		43		25		72.0%
Net insurance claims and benefits	(386)	(382)	1.0%

	Acquisition expenses		(129)		(125)		3.2%
Administrative expenses	(36)	(30)	20.0%
	Reinsurance commissions and profit-sharing		10		10		0.0%
Other	3	(14)		X
	Insurance result		106		85		24.7%
acquisition expenses ratio (including reinsurance commission)1)	19.8%	19.1%		0.7 p.p.
	administrative expense ratio 1)		6.0%		5.0%		1.0 p.p.
loss ratio 1)	64.2%	63.6%		0.6 p.p.
	combined ratio (COR) 1)		90.0%		87.7%		2.3 p.p.

Ratios calculated using net earned premium

Net insurance claims and benefits increased by 1.0% while net earned premium was retained, translating into deterioration in the loss ratio by 0.6 percentage points. A higher loss ratio in the segment was driven by the following factors:

higher loss ratio in the portfolio of non-motor insurance products, including general liability insurance - in the corresponding period of 2019 claims and benefits were lower in the medical center insurance portfolio.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

decline of the loss ratio in the motor insurance group, both motor TPL and Motor Own Damage (MOD), mainly as a result of a lower frequency of reported losses (impact of restrictions in domestic and international traffic introduced due to the pandemic). This effect was partially offset by the observed growth in the average claim value, occurrence of a high unit value event and the impact of PLN depreciation against EUR on losses in foreign currencies.

The increase in investment income allocated to the corporate insurance segment ensued chiefly from strong appreciation of the PLN/EUR exchange rate, partially offset by lower interest rates.

Acquisition expenses (net of reinsurance commissions) in the corporate insurance segment increased by PLN 4 million, or 3.2% as compared to Q1 2019, mainly due to a change in the product mix (high percentage of insurance of large and medium-sized property with a simultaneous slower growth of motor TPL sales, which command lower commission rates).

The increase in administrative expenses by 20% (PLN 6 million) y/y resulted primarily from higher personnel costs (driven mainly by salary pressures from the market) and IT costs (costs of license fees).

After Q1 2020, the corporate insurance segment generated an underwriting result of PLN 106 million, signifying a 24.7% increase compared to the same period last year. The increase was due to improved profitability in the motor insurance portfolio and higher income on investments allocated to the segment, while the sales level was about the same and the loss ratio increased slightly in the property insurance portfolio.

14.2 Mass insurance - non-life insurance

In Q1 2020, gross written premium in the mass insurance segment rose PLN 75 million (+2.8% y/y) compared to the corresponding period of 2019. This growth resulted primarily from:

upswing in premium from ADD and other insurance products (+24.9% y/y), driven by growth of insurance sales offered in cooperation with the Group's banks as an addition to mortgage loans and cash loans and provision of an insurance cover for physicians and medical personnel against COVID-19 infection;
lower gross written premium in motor TPL insurance (1.4% y/y) as a result of the higher average premium coupled with a decrease in the number of insurance products;
higher sales of insurance against fire and other damage to property, including insurance of apartments and crops.

Data from the profit and loss account - mass insurance		1 January -		1 January -	% change
(non-life insurance)		31 March 2020		31 March 2019


Gross written premiums		2,762		2,687	2.8%
Net earned premium	2,520	2,504	0.6%

Investment income		170		120	41.7%
Net insurance claims and benefits	(1,529)	(1,548)	(1.2%)

Acquisition expenses		(492)		(475)	3.6%
Administrative expenses	(166)	(152)	9.2%

Reinsurance commissions and profit-sharing		(1)		-	X
Other	(81)	(59)	37.3%
Insurance result		421		390	7.9%
acquisition expenses ratio (including reinsurance commission)1)	19.6%	19.0%		0.6 p.p.
administrative expense ratio 1)		6.6%		6.1%	0.5 p.p.
loss ratio 1)	60.7%	61.8%		(1.1) p.p.
combined ratio (COR) 1)		86.8%		86.9%	(0.1) p.p.

Ratios calculated using net earned premium

Net insurance claims and benefits fell 1.2%, which when coupled with net earned premium being up 0.6%, translates into the loss ratio improving by 1.1 percentage points.

This change resulted mainly from the following:

lower loss ratio in the group of insurance against fire and other damage to property - in the corresponding period of 2019 there were numerous losses caused by fires and gusty wind;

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

deterioration of the loss ratio in motor insurance, driven by a higher loss ratio in the TPL portfolio and a lower loss ratio in Motor Own Damage after earned premium fell faster than claims and benefits paid, despite the much lower frequency of claims reported in March 2020 (as a result of restrictions in domestic and international traffic introduced due to COVID-19).

The increase in investment income allocated to the mass insurance segment ensued chiefly from strong appreciation of the PLN/EUR exchange rate, partially offset by lower interest rates.

In Q1 2020, acquisition expenses in the mass insurance segment were PLN 492, up PLN 17 million (+3.6%) from the corresponding period last year, which considering the increase in net earned premium by 0.6%, represented a 0.6 p.p. deterioration in the acquisition expense ratio. The driver of this change in the level of acquisition expenses was the higher level of direct acquisition expenses due to the shift in the mix of products and sales channels (lower growth of sales of motor TPL insurance characterized by lower commission rates).

The increase in administrative expenses by 9.2% (PLN 14 million) y/y resulted primarily from higher personnel costs (driven mainly by salary pressures from the market) and IT costs (costs of license fees).

The increase in the insurance result in the mass insurance segment by PLN 31 million (+7.9%) relative to Q1 2019 was driven primarily by the lower loss ratio in non-motor insurance (lower level of losses caused by weather events) and higher investment income.

14.3 Group and individually continued insurance - life insurance

Gross written premium was PLN 26 million (1.5%) higher than in the corresponding period last, which resulted primarily from:

attracting further contracts in group health insurance products or individually continued products (new clients in outpatient insurance and sales of different options of the medicine product). At the end of March 2020, PZU Życie had more than 2.1 million in force contracts of this type. In the current quarter, the continued insurance rider called "PZU orthopedic injury" continued its successful run. In case of an accidental orthopedic injury, e.g. fracture, dislocation or sprain, the insured will be provided assistance of a physiotherapist and an orthopedist. The insured will also be able to use rehabilitation procedures in private medical centers across Poland. The insurance posted a record gross written premium in the current period; moreover seven out of ten insureds enrolling in individual continuation also selected this rider;
active up-selling of insurance riders in other individually continued products, including in particular together with the offering of the basic agreement in PZU branches and increase of sums insured during the terms of the agreements. Besides the rider stated above, in Q4 2018 PZU Życie rolled out a rider covering a myocardial infarction or stroke to provide financial support when these types of events occur, while in Q3 2019 insurance to safeguard the policyholder in the event of permanent bodily injury or broken bones in the form of a cash benefit and access to medical services, These agreements enjoyed increasing interest of clients, contributing to premium growth.

At the same time, revenues from group protection products remained under pressure posed by higher attrition of the insureds in groups (work establishments), and the limited pressure on the growth rate of the average premium made it possible to control the loss ratio in group protection products.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

Data from the profit and loss account - group and individually		1 January -		1 January -	% change
continued insurance		31 March 2020		31 March 2019

Gross written premiums		1,759		1,733	1.5%
Group insurance (periodic premium)	1,248	1,228	1.6%

Individually continued insurance (periodic premium)		511		505	1.2%
Net earned premium	1,758	1,732	1.5%

Investment income		25		176	(85.8)%
Net insurance claims and benefits and movement in other net	(1,121)	(1,364)	(17.8)%
technical provisions

Acquisition expenses		(97)		(90)	7.8%
Administrative expenses	(158)	(151)	4.6%
Other		(9)		(7)	28.6%
Insurance result	398	296	34.5%


Insurance result net of the conversion effect	394	291	35.4%
acquisition expense ratio 1)		5.5%		5.2%	0.3 p.p.
administrative expense ratio 1)	9.0%	8.7%		0.3 p.p.
insurance margin net of the conversion effect 1)		22.4%		16.8%	5.6 p.p.

Ratios calculated using gross written premium

The investment result consists of income allocated according to transfer prices and income on investment products. In the group and individually continued insurance segment, investment income fell, mainly due to the lower results on unit-linked products, especially Employee Pension Schemes, as a result of a decline in market conditions due to the COVID-19 pandemic. Income allocated according to transfer prices increased slightly as a result of a higher level of technical provisions in protection insurance products, partially offset by lower interest rates.

Insurance claims and benefits and the movement in other net technical provisions totaled PLN 1,121 million, which signifies a y/y decline of PLN 243 million, or 17.8%. This change was driven in particular by the following:

a decrease in technical provisions in Employee Pension Plans (PPE, a third pillar retirement security product) compared to an increase in the previous year, due to lower investment results this year, coupled with a stable level of client withdrawals from and higher level of client contributions to accounts of unit-linked insurance funds;
lower benefits paid in group protection insurance products mainly under hospitalization and surgical operation, permanent disability and dismemberment riders, which could result partly from the lower activity associated with the pandemic and changes in client behavior with respect to the channels used to report claims;
lower value of benefits related to deaths of insureds and co-insureds in continued insurance, which is correlated with the frequency of these events in the overall population in accordance with the data published by the Central Statistical Office (GUS);
lower than last year increase in mathematical provisions in continued products as a result of the change in the percentage of "old" and "new" continuation among the persons joining and remaining in the insured portfolio - in "new" continuation the unit cost of setting up mathematical provisions for future benefit payments is lower; additionally, the level of new insureds in the portfolio is lower than last year.

The foregoing effects were partially offset by the following:

rising value of medical benefits in health products in proportion to the dynamic growth in this portfolio of contracts;
this year's higher disbursements of benefits in the portfolio of bank protection products, which was linked to higher unit benefits;
the lower pace of converting long-term insurance policies into yearly-renewable term business in type P group insurance than last year. As a result of the conversion, in Q1 2020, provisions were released for PLN 4 million, PLN 1 million less than in the corresponding period of 2019.

Acquisition expenses in the group and individually continued insurance segment in Q1 2020 were PLN 97 million, increasing by PLN 7 million (7.8%) relative to last year. The main contributor to the growth of this item was the reorganization and development costs of the sales network and modification of the remuneration system in the agency network.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

The increase in administrative expenses by 4.6% (PLN 7 million) y/y resulted primarily from higher personnel costs (driven mainly by salary pressures from the market), IT costs (higher amortization of computer software related to implementation of projects and license fees) and higher costs of servicing life products.

Operating profit in the group and individually continued insurance segment in Q1 2020 climbed compared to the corresponding period of 2019 by PLN 102 million (34.5%) to PLN 398 million. Operating profit, net of the conversion effect on long-term contracts into renewable term contracts in type P group insurance increased PLN 103 million y/y (35.4%). The results were positively impacted mainly by the falling loss ratio for certain risks in the group protection portfolio and the increasing investment income allocated by transfer prices, and were partially offset by growing operating costs.

14.4 Individual insurance - life insurance

The growth in gross written premium of PLN 89 million (27.2%) to PLN 416 million compared to Q1 2019 was the result of the following positive factors:

higher payments to the accounts of unit-linked insurance funds in unit-linked products offered jointly with the banks;
higher payments to other unit-linked insurance products, including under individual retirement accounts;
constantly rising level of premiums on protection products in endowments and term insurance offered in own channels - the level of sales and premium indexation on contracts remaining in the portfolio have outpaced the level of lapses;
growth of the insured portfolio in protection products in the bancassurance channel, including in particular launch of sales of a new product together with Bank Pekao.

At the same time, the portfolio was adversely affected by the discontinuation in early 2020 of sales of a structured product offered in the own network.

Data from the profit and loss account - individual insurance		1 January -		1 January -	% change
	31 March 2020		31 March 2019


Gross written premiums		416		327	27.2%
Net earned premium	418	330	26.7%

Investment income		(267)		192	X
Net insurance claims and benefits and movement in other net	(22)	(406)	(94.6)%
technical provisions

Acquisition expenses		(39)		(31)	25.8%
Administrative expenses	(20)	(17)	17.6%
Other		-		(1)	X
Insurance result	70	67	4.5%

acquisition expense ratio 1)		9.4%		9.5%	(0.1) p.p.
administrative expense ratio 1)	4.8%	5.2%		(0.4) p.p.
insurance margin 1)		16.8%		20.5%	(3.7) p.p.

Ratios calculated using gross written premium

The investment result consists of income allocated using transfer prices and income on investment products. In the individual insurance segment, it fell mainly due to the lower income on investment products as a result of worse conditions on financial markets in connection with the COVID-19 pandemic. Income allocated according to transfer prices were slightly lower as a result of the lower level of market prices in insurance products.

The amount of insurance claims and benefits together with the movement in other net technical provisions was PLN 22 million, reflecting an decrease in this item by PLN 384 million compared to the corresponding period of 2019. The change in the result generated on funds in investment products made a major contribution to this decrease. From the operational point of view, this factor was rather insignificant as it was offset by other relevant items of the profit and loss account. Negative developments also emerged in the unit-linked portfolio in cooperation with banks, where significantly more requests for surrender amount payments were recorded in the current period.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

In Q1 2020, acquisition expenses in the individual insurance segment increased 25.8% to PLN 39 million. The higher costs resulted mainly from higher sales of protection insurance in the banking channel and the related increase in fees paid to intermediaries and the additional costs of sales support in the own network.

The increase in administrative expenses by 17.6% (PLN 3 million) y/y resulted primarily from higher personnel costs (driven mainly by salary pressures from the market). Cost discipline was maintained in other non-staff related areas of activity.

The segment's operating result increased compared to the previous year by PLN 3 million to PLN 70 million. The growth was driven mainly by the growing insurance portfolio, mainly in banking channels, which was partially offset by higher operating expenses and lower allocated investment income. The lower margin recorded by the segment was additionally affected by a change in the revenue mix towards a higher share of bancassurance products, which command lower margins than products sold through own channels.

14.5 Bank segment

The banking activity segment consists of the following groups: Pekao and Alior Bank.

In Q1 2020, the banking activity segment generated PLN 61 million in operating loss (without amortization of intangible assets acquired as part of the transactions to take over the banks), which signifies a decrease of PLN 682 million compared to Q1 2019. The lower result is caused primarily by the non-recurring effect of an impairment loss on the goodwill arising from the acquisition of Alior Bank in the amount of PLN 516 million. The segment's result was additionally encumbered by additional loan provisions in Pekao and a significant impact of the CJEU judgment on the refund of costs upon early repayment of consumer loans.

Banking activity (m PLN)		1 January -		1 January -		% change
	31 March 2020		31 March 2019


	Revenues and expenses on account of fees and commissions		740		757		(2.2)%
Investment income	2,111	2,297	(8.1)%

	Interest expenses		(463)		(490)		(5.5)%
Administrative expenses	(1,227)	(1,213)	1.2%

	Other		(1,222)		(730)		67.4%
Total	(61)	621		x

In 2020, Pekao contributed PLN 334 million to the operating profit (without amortization of intangible assets acquired as part of the Pekao S.A. acquisition transaction) in the "Banking activity" segment, while Alior Bank's contribution was PLN 121 million.

Investment income, which amounted to PLN 2,111 million in Q1 2020 (down 8.1% y/y), is the key component of the segment's revenue. Investment income consists of: interest income, dividend revenue, trading result and result on impairment charges. In Q1 2020, growth was posted in the level of sales of credit products y/y in Pekao and Alior Bank, among others, as a result of good business conditions continuing for the most part of the quarter and the low interest rate levels, which increased the level of credit receivables. At the same time, net interest income (interest income less interest expenses) posted by the banks decreased mainly in connection with the CJEU judgment in the matter of consumer loans; this decrease was partially offset by an increase in the volume of loans to their customers. At the end of Q1 2020, the credit portfolios of both banks rose by 6.2% as compared to Q1 2019, while the decline y/y in investment income was also affected by an additional provision of about PLN 200 million for projected deterioration of credit portfolio quality recognized in Q1 2020 in Pekao.

The profitability of the banks in the PZU Group in Q1 2019 measured by the net interest margin was 2.9% in Pekao and 4.3% in Alior Bank. The difference between them stems in particular from the mix of the loan receivables portfolio.

The net fee and commission income in the banking activity segment decreased 2.2% y/y to PLN 740 million. Administrative expenses in the segment totaled PLN 1,227 million, with Pekao's costs accounting for PLN 836 million and Alior Bank's costs accounting for PLN 391 million. The 1.2% y/y increase in costs was driven mainly by an increase in personnel costs in Pekao.

Moreover, the operating result was affected by other operating income and expenses, where the main item was the impairment loss on the goodwill arising from the acquisition of Alior Bank (PLN 516 million). Items contributing to expenses included fees to the Bank Guarantee Fund (PLN 339 million) and the levy on other financial institutions (PLN 211 million). The lower fees to the Bank Guarantee Fund (down by PLN 176 million y/y) was partially offset by the higher levy on financial institutions and recognition of the restructuring provision in Pekao.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

As a result, the Cost/Income5 ratio was 43% for the two banks. On a separate basis, the ratio is 44% for Pekao and 41% for Alior Bank.

14.6 Investments

Net investment result and interest expenses

The net investment result after factoring in interest expenses, excluding the Pekao and Alior Bank data and with consolidation adjustments, was lower than in the corresponding period last year by PLN 903 million, which was primarily due to the following drivers:

lower investment income in the portfolio of assets to cover investment products by PLN 647 million, even though it does not affect the PZU Group's overall net result because it is offset by the change in net insurance claims and benefits.
the temporary impact of the non-recognition of the increased value of investment properties due to the appreciation of EUR to PLN exchange rate, due to the 6-month procedure of preparation of expert appraisals, while the reduced value of FX derivatives hedging the value of properties has been recognized;
lower result on listed equities, in particular due to worse market conditions as a result of the COVID-19 pandemic.

The above decreases were partially offset by the recognition of additional foreign exchange differences on portfolios measured in EUR and covering insurance liabilities, whose measurement is recognized by changes in net insurance claims and benefits.

Operating income of the investment segment (based exclusively on external transactions) were lower than in the corresponding period of last year, primarily due to the worse market conditions.

The value of the investment portfolio6 continues at the level similar to the end of last year, in connection with the deterioration of market conditions, partially offset by increased receipts from premiums at the beginning of the year.

Structure of the investment portfolio

Investment portfolio		31 March 2020		31 December 2019
	Equity instruments, including:		5,047		5,697
	Equity instruments - quoted	753	970

	Equity instruments - unquoted		4,294		4,727
Debt instruments, including:	42,438	41,384
	Debt market instruments - treasury		29,985		28,927
	Debt market instruments - non-treasury	3,964	3,945
	Reverse repo transactions and term deposits with credit institutions		4,334		4,022
	Loans	4,155	4,490
	Investment property		2,492		2,467
Derivatives (net value)	(383)	141

	Liabilities on account of repurchase transactions		(36)		-
Total investment portfolio	49,558	49,689

Cost/Income ratio (C/I; banking segment) - ratio of administrative expenses and sum of operating income, excluding: the impairment loss on the goodwill arising form the acquisition of Alior Bank, the BFG charge, the levy on other financial institutions and the movement in allowances for expected credit losses and impairment losses on financial instruments.
The investment portfolio contains investment financial assets (including investment products), investment properties (including the part presented in the category of assets held for sale) financial derivatives along with the negative valuation derivatives and liabilities arising from repurchase transactions.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

14.7 Pension insurance

Pension insurance		1 January -			1 January -	% change
	31 March 2020			31 March 2019


Investment income			1		1	0.0%
Other income			47	32	46.9%

Income			48		33	45.5%
Administrative expenses			(9)	(12)	(25.0)%

Other			(1)		(1)	0.0%
Operating result			38	20	90.0%

Revenue on core business in the pension insurance segment in Q1 2020 and Q1 2019 was PLN 48 million and PLN 33 million, respectively. The increase in revenue by PLN 15 million resulted from settlement of the overpayment to the KDPW Guarantee Fund for Q1 2020.

PTE PZU's administrative expenses dropped by PLN 3 million y/y (-25.0%). The key driver was a change in mandatory payments to the KDPW Guarantee Fund, with costs of an additional payment to the Guarantee Fund posted in Q1 2019.

At the end of Q1 2020 the total net asset value of all open-end pension funds (OFEs) on the market was PLN 116.2 billion, down 28.2% from the end of March 2019. In the same period OFE PZU's assets fell by 31.5% to PLN 15.7 billion. In the period from January to March 2020 OFE PZU's rate of return was -27.0% as a result of worse market condition on capital markets in Poland and globally.

14.8	Baltic States
Data from the profit and loss account - Baltic States segment		1 January -		1 January -		% change

	31 March 2020		31 March 2019

Gross written premiums		423		416		1.7%
Net earned premium	418	386	8.3%
Investment income		(27)		14		(292.9)%
Net insurance claims and benefits	(234)	(247)	(5.3)%
Acquisition expenses		(86)		(81)		6.2%
Administrative expenses	(35)	(31)	12.9%

Other			1		1		0.0%
Insurance result	37	42	(11.9)%

EUR exchange rate in PLN		4.3963		4.2978		2.3%
acquisition expense ratio 1)	20.6%	21.0%		(0.4) p.p.
administrative expense ratio 1)		8.4%		8.0%		0.4 p.p.

Ratios calculated using net earned premium

As part of the Baltic operations, the PZU Group offers non-life insurance and life insurance products. Non-life insurance is provided by: LD - leader of the Lithuanian market, AAS Balta in Latvia and the LD branch in Estonia. Life insurance is sold by PZU LT GD in Lithuania.

The Lithuanian non-life insurance market share at the end of Q1 2020 was 27.5%; the life insurance market share was 6.3%. At the end of March, the market share in the Estonian market was 15.2%. As at the end of 2019, the market share in the Latvian market reached 28.4%.

On account of its activity in the Baltic states, the PZU Group generated as at the end of Q1 2020 an insurance result of PLN 37 million compared to PLN 42 million at the end of March last year.

This result was driven by the following factors:

an increase in gross written premium. It totaled PLN 423 million, up PLN 7 million (1.7%) compared to the corresponding period last year. In the functional currency, the premium was EUR 0.6 million lower - the EUR 1 million decrease in non-life insurance, mainly due to lower sales of TPL and MOD motor insurance and agricultural insurance was partially offset by higher sales of health insurance. In life insurance gross written premium rose EUR 0.4 million;

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

lower investment income. After Q1 2020, as a result of lower valuation of investment assets, the investment result was negative (PLN -27 million), down PLN 41 million versus the corresponding period of the past year;
lower value of net claims and benefits. They amounted to PLN 234 million and were 5.3% lower than in the first quarter of the previous year. The loss ratio in non-life insurance stood at 60.4%, down 1.4 p.p. from the end of March 2019. In life insurance, the decrease in provisions for client risk exceeded the amount of benefits paid.
higher acquisition expenses. The segment's expenditures for this purpose were at PLN 86 million, up 6.2% from the corresponding period of the previous year. In turn, the acquisition expense ratio calculated based on net earned premium declined 0.4 p.p. compared to the end of Q1 of the previous year;
increase in administrative expenses. They were PLN 35 million, increasing by 12.9% from the corresponding period last year. The administrative expense ratio increased; it was 8.4%, up 0.4 p.p. relative to the same period last year.

14.9	Ukraine
Data from the profit and loss account - Ukraine segment		1 January -		1 January -		% change

	31 March 2020		31 March 2019

	Gross written premiums		79		71		11.3%
Net earned premium	58	42	38.1%
	Investment income		16		8		100.0%
Net insurance claims and benefits	(26)	(19)	36.8%
	Acquisition expenses		(31)		(25)		24.0%
Administrative expenses	(8)	(7)	14.3%

	Other			9		6		50.0%
Insurance result	18	5	260.0%

	exchange rate UAH/PLN		0.1554		0.1388		12.0%
acquisition expense ratio 1)	53.4%	59.5%		(6.1) p.p.
	administrative expense ratio 1)		13.8%		16.7%		(2.9) p.p.

Ratios calculated using net earned premium

As part of the Ukrainian operations, the PZU Group offers non-life insurance and life insurance products through the following companies: PZU Ukraine and PZU Ukraine Life.

The Ukrainian non-life insurance market share at the end of 2019 was 3.5%, while the life insurance market share was 11.3%. The Ukraine segment closed Q1 2020 with an operating profit of PLN 18 million, compared to PLN 5 million after Q1 last year The change in the result generated by the segment was caused by the following factors:

an increase in gross written premium. It totaled PLN 79 million, up PLN 8 million (11.3%) compared to the corresponding period last year. In the functional currency, gross written premium fell by UAH 5 million - non-life insurance sales decreased UAH 40 million compared to Q1 last year mainly due to lower premiums in tourist insurance required to applying for a Polish visa and in green card insurance products as a result of restrictions imposed on cross-border traffic. Life insurance sales increased by UAH 35 million, earned in cooperation with banks;
higher investment income. It was PLN 16 million, up 8% from the corresponding period last year;
increase in net costs of claims and benefits. They amounted to PLN 26 million and were 36.8% higher than in Q1 2019. The value of claims paid in non-life insurance increased PLN 2 million and in life insurance benefits rose PLN 5 million;
higher acquisition expenses. They stood at PLN 31 million compared to PLN 25 million in Q1 last year. The growth in non-life insurance was equal to PLN 2 million, while in life insurance it was PLN 4 million.
An increase in administrative expenses. They amounted to PLN 8 million. For comparison: they were PLN 7 million in the same period last year. The segment's administrative expense ratio went down 2.9 p.p. to 13.8%.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

14.10 Investment contracts

In the consolidated financial statements investment contracts are recognized in accordance with the requirements of IFRS 9.

The results of the investment contracts segment are presented according to Polish Accounting Standards, which means that they include, among other things, gross written premium, claims paid and movement in technical provisions. The above categories are eliminated at the consolidated level.

Gross written premium generated on investment contracts after Q1 2020 decreased by PLN 1 million (-10.0%) to PLN 9 million, compared to the corresponding period in 2019. These changes stemmed chiefly from the drop-off of contributions to IKZE accounts after this product was withdrawn from the offer.

Data from the profit and loss account - investment contracts		1 January -		1 January -		% change
	31 March 2020		31 March 2019

	Gross written premiums		9		10		(10.0)%
	Group insurance	-	-		x
	Individual insurance		9		10		(10.0)%
Net earned premium	9	10	(10.0)%
	Investment income		(29)		8		x
Net insurance claims and benefits and movement in other net	22	(16)		x
technical provisions

	Acquisition expenses		-		-		x
Administrative expenses	(1)	(1)	-
	Other		-		-		x
Operating result	1	1	-
	operating profit margin		11.1%		10.0%		1.1 p.p.

Income on investing activity in the investment contracts segment fell relative to the previous year, mainly as a result of a lower rate of return on individual pension security accounts (IKZEs) and unit-linked funds in the bancassurance channel.

The cost of insurance claims and benefits coupled with the movement in other net technical provisions fell y/y by PLN 38 million to PLN 22 million, mainly due to the difference in investment income in the unit-linked products as described above.

In the investment contract segment, no active acquisition of contracts is currently underway.

Administrative expenses were PLN 1 million and did not decrease year on year. The segment's operating result was PLN 1 million, remaining flat because of small changes in the contract portfolio in this segment.

15. Impact of non-recurring events on operating results

In Q1 2020, as a result of the performed impairment tests, the PZU Group decided to recognize an impairment loss on Alior Bank's goodwill in the amount of PLN 516 million.

The conversion effect of long-term policies into yearly renewable term agreements in type P group insurance treated as a non- recurring event was lower in Q1 2020 by PLN 1 million in comparison with the comparable period of the previous year.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

16. Changes in the economic situation and business conditions with material effect on the fair value of financial assets and liabilities

16.1 Macroeconomic environment

Gross domestic product

In the last quarter of 2019, GDP growth in Poland, as measured in constant prices, decelerated to 3.2% y/y compared to 4.0% y/y in the third quarter. 7Even though the growth of household consumption slowed down, it still contributed most to GDP growth during this period, adding 1.6 p.p. on an annual basis. Thanks to a slight increase in investments in fixed assets, their contribution to GDP growth in Q4 was only slightly lower than that of individual consumption (they contributed 1.2 p.p.). On the other hand, the contribution of the change in material current assets was clearly negative, subtracting as much as 1.3 p.p. from GDP growth. Economic growth was visibly supported by net exports (which contributed 1.1 p.p.)8.

The COVID-19 pandemic dramatically changed the economic situation globally. The economic activity data for the first two months of this year were better than expected in Poland, opening the possibility of a slight acceleration of GDP growth. However, as of 14 March, it became necessary to "freeze" the activity of a significant portion of trade and services in order to limit the upward trend in infections. Additionally, supply disruptions had an adverse effect on industrial production. As a result of this supply-demand shock, business activity decelerated rapidly on a scale never before seen in the Polish economy after the market transformation period.

In March this year, retail sales at constant prices were as much as 9% lower than one year earlier, with the greatest decreases recorded in entities trading in textiles, clothing, footwear, motor vehicles and fuels. As a result, over the entire first quarter of this year, retail sales increased by only 0.7% relative to the corresponding period last year. Seasonally-adjusted annual production sold by industry decreased in March (by 4.8%) for the first time in seven years, and in the entire first quarter it was only 1% higher than one year before in seasonally unadjusted terms (vs. 6.1% y/y growth in Q1 2019). Construction output was the least severely impacted by the pandemic-related disruption. In January-March of this year, it was 5.8% higher than last year.

According to quick estimates of the Central Statistical Office, the GDP growth rate in Q1 this year fell to 1.9% y/y. When adjusted for seasonality, the GDP growth decrease in Poland in Q1 (-0.5% vs. Q4 2019) was still lower than in the entire European Union, where GDP went down 3.3% as compared to Q4 2019).

Labor market and consumption

In the entire first quarter of this year, employment growth in the corporate sector decreased to 0.8% y/y compared to 2.3% y/y in Q4 2019. Companies reacted relatively quickly to the disruption caused by the pandemic. In March, despite favorable seasonal effects, the average headcount in the corporate sector decreased by 34 thousand FTEs. Nevertheless, the decrease in employment was not caused by redundancies only, but also by retirements, unpaid leaves, non-renewal of completed fixed- term contracts. Sickness and care benefits were collected more often than usual, which could also cause a decrease in employment recorded in statistical terms.

However, the registered unemployment rate fell already in March 2020 in line with the seasonal pattern to 5.4% compared to 5.6% in February and was 0.2 p.p. higher relative to the end of 2019. On both a monthly and annual basis, the number of job offers submitted to labor offices fell significantly in March.

The growth rate of average monthly salary in companies increased slightly in the first quarter (to 7% y/y in nominal terms vs. 5.8% y/y in Q4 2019) due to the high increase in minimum wages. In March, however, it was already lower than in January and

data from the Central Statistical Office updated on 11 May this year
data from the Statistical Bulletin of the Central Statistical Office of 24 April this year.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

February. The increase in inflation adversely affected the purchasing power of salaries. In the first quarter of the year, salary growth in the corporate sector decreased in real terms to 2.5% y/y, compared to 3.0% y/y in the previous quarter.

Retail sales and consumption were strongly adversely affected by pandemic-related restrictions introduced in March. Consumer confidence indicators clearly deteriorated as well. In Q4 2019, household consumption climbed 3.3% y/y in real terms. Data on retail sales in Q1 indicate that the household consumption growth rate was much lower in that period.

Inflation, monetary policy, interest rates

Inflation measured by the Consumer Price Index (CPI) increased to 4.5% y/y in Q1, compared to 2.8% y/y in the previous quarter. This was driven by both increases in food prices (by 8.3% y/y in Q1 2020) and increases in regulated prices of electricity, excise tax on alcohol and tobacco products, and increases in waste disposal prices.

In 2020, the National Bank of Poland has already slashed the reference rate twice (in March and April 2020), each time by 50bps (100bps in total), and it currently stands at 0.50%. The Monetary Policy Council also decided to reduce the mandatory loan loss reserve rate for banks from 3.5% to 0.5%. The NBP also carried out operations supplying liquidity to banks through repo transactions, implemented large-scale purchases of treasury bonds and treasury-guaranteed bonds on the secondary market (including PFR and BGK bonds) supporting liquidity on that market. It also implemented bill of exchange loans for banks for the refinancing of new loans granted to business entities. These measures are designed to counteract the negative economic impact of the COVID-19 epidemic. The Council also believes that, in the long term, they will encourage recovery of domestic economic activity and in the medium term they will allow inflation to move towards the NBP inflation target.

Public finance

The deficit in the general government sector in 2019 was 0.7% of GDP versus 0.2% of GDP in 2018. The debt of this sector decreased to 46.0% of GDP in 2019 from 48.8% of GDP in 2018. According to the updated Convergence Program adopted in April 2020, the deficit of the general government sector will increase to 8.4% of GDP in 2020 and the sector's debt will rise to 55.2% of GDP in 2020. The increase in the deficit is associated with additional government spending on aid measures aimed at counteracting the negative effects of the epidemic.

The state budget deficit in March of this year amounted to PLN 9.4 billion. This result is worse than one year ago when in the corresponding period the budget had a deficit of PLN 4.5 billion. The increase of this deficit is the outcome of the slower pace of growth in income and the faster pace of incremental growth in expenditures. The major categories of direct taxes, i.e. PIT and CIT demonstrated lower growth rates among the sources of income. The higher rate of spending was driven by, among other factors, the implementation of state social policy programs, such as the 500+ for the first child. The financing of the borrowing needs after the first quarter of 2020 (according to the State Budget Act) is approximately 87%. However, due to the COVID-19 epidemic outbreak, the borrowing needs for 2020 will increase significantly.

Situation on financial markets

In Q1 2020, we observed a decrease in the yields of 10-year treasury bonds in the US and Germany. In the US yields fell from 1.91% at the end of 2019 to 0.70% at the end of the first quarter, setting the historical minimum (0.50%) on March 9th. In Germany, they fell from -0.19% at the year-end to -0.46% at the end of the quarter, setting their historical minimum at -0.84%, also on March 9th. In the US, the yield curve steepened in this period, and in Germany it flattened. The decline in long-term bond yields is due to concerns of a protracted recession due to the disruption caused by the COVID-19 pandemic. Reacting to the risk of a strong economic slowdown, the US central bank (Fed) slashed the base rate twice in Q1, by 50 and 100 bps respectively, to 0%. It also implemented a wide range of non-standard monetary policy instruments, which included, among others, the resumption of purchases of U.S. treasury bonds, but also corporate bonds. The ECB also adopted a considerable package of measures loosening the monetary policy, aimed at supporting the transmission of monetary policy and counteracting further deterioration of economic growth prospects. The ECB has not decided to cut interest rates, but it has extended significantly the scope of its asset purchase program.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

In Q1 2020, the yield on 10-year Polish treasury bonds decreased from 2.07% at the end of 2019 to 1.69% at the end of the first quarter. The yield on one-year treasury bonds slid from 0.98% to 0.87%. The yield curve flattened. The spread versus 10-year German bonds that was 225 basis points at the beginning of the previous quarter, fell to 214 basis points at the end of the first quarter. The drop in yields was caused mainly by the reduction of the NBP interest rates and a decision to begin the purchase of bonds on the secondary market.

The euro to US dollar exchange rate decreased from 1.12 at the end of 2019 to 1.10 at the end of the first quarter. During the first quarter, the Polish zloty weakened in relation to other major currencies, in the context of widespread capital outflow from emerging markets and weakening of their currencies. The Euro to PLN exchange rate at the end of Q1 was 4.55 vis-à-vis 4.26 at the end of the previous quarter. The US dollar to PLN exchange rate at the end of March 2020 was 4.15, compared to 3.80 at the end of the previous quarter. In the same period, the Swiss franc exchange rate increased from 3.92 to 4.30.

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

In Q1 2020 global stock markets suffered steep declines, mainly in late February and March. In Q1 the American S&P500 stock index fell 20% while the German DAX index decreased 25%. In the first quarter, equity indices fell also on the Polish stock exchange. The WIG index dropped 28.0%, the WIG20 index fell 29.6%, the mWIG40 plunged 27.0% and the sWIG80 declined 14.8%. All sector indices were also adversely affected. In relative terms, the telecommunications and construction sectors performed the best and the clothing sector performed the worst.

16.2 Risk factors which may affect the financial results in the subsequent quarters

The main risk factors are linked to the potential course of the COVID-19 pandemic, including a significant likelihood of its intensification in the northern hemisphere in Autumn, and the scale of the decline in economic activity in connection with the maintenance of the necessary restrictions in Poland and its trading partners. The effect of the pandemic was the most severe on the service sector; transport, commerce, restaurant and hotel services and the broadly defined culture and entertainment sector. Global supply chains have also been disrupted. It seems inevitable for Poland's GDP to fall by several percent in 2020 along with household consumption and for the situation on the labor market to deteriorate significantly. The additional risk factor is the extent the crisis will affect Poland's surrounding economies.

In particular, apart from chance events (such as floods, cyclones, drought), the main factors that may affect the PZU Group's standing in the following quarter include the following:

GDP decrease in Poland, and consequently:
- cuts in household and corporate spending, including on purchases of motor insurance policies (due to lower sales of new cars), lower sales of loans and associated borrowers' insurance products and a slump in demand for other life insurance products, in particular as a result of a reduction of benefits offered by companies;
- a poorer financial standing of companies would result in an elevated credit risk (in particular in the banking segment) and a higher loss ratio on the financial insurance portfolio;
- a slump in the rate of growth in new mortgage loans and a slower pace of growth in consumer loans;
higher unemployment, lower employment and lower household income, despite the increase in the minimum wage in 2020;
greater difficulty with maintaining the portfolio of insureds in group life insurance due to the expected increase in unemployment and suspensions/liquidation of companies in endangered industries; temporary decrease in sales, especially in unit-linked insurance due to financial risk and lower accessibility of bank branches;
significant uncertainty about the future paramedical benefits in connection with the COVID-19 pandemic;

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

softer conditions on the capital markets reducing the value of the investment portfolio, assets under management (TFI PZU, OFE PZU) and deteriorating the attractiveness of products, especially unit-linked products;
reduction in interest rates, which lowers investment income levels, making it difficult for insurers to achieve guaranteed rates of return;
increase in the prices of spare parts affecting claims handling expenses due to the depreciation of the Polish zloty against the euro (impact on the mass and corporate insurance segments);
coming into force of further regulations or financial burdens on insurance undertakings;
possible increase in claims handling expenses due to the implementation of further guidelines issued by the Polish Financial Supervision Authority (KNF) regarding the handling of claims, in particular personal injury claims (impact on the mass and corporate insurance segments);
possible slowdown in the growth rate of gross written premium, mostly as a consequence of the motor insurance portfolio's profitability generated in recent years, and thereby the return to an active pricing policy and rivalry to attract clients (with an impact exerted on the mass and corporate insurance segments);
demographic changes and the aging society and the ensuing changes in the current mortality, fertility and morbidity levels, especially diseases of civilization, i.e. lifestyle diseases;
constant price pressure in group insurance and the battle for client ownership (and their data), thereby cutting the insurer's margins and the quality of the product offering as well as fostering entry and exit obstacles for clients to overcome with independent intermediaries (with an impact being exerted in particular on the group and individually continued insurance segment);
changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to adapt to these expectations rapidly;
availability of medical personnel in public health care centers (affecting health products);
the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies;
preparation of pension fund companies for potential organizational and legal changes arising from the transformation of open-end pension funds into mutual funds and of pension fund companies into mutual fund companies (impact on the pension segment);
introduction of a new pension security system (Employee Capital Schemes) and its impact on the third pension pillar products functioning thus far (the level of clients' contributions to the EPS programs and IRA contracts currently held in the PZU Group's portfolio and on the level of results generated in these lines of business for the PZU Group).
for banks the key role is played by the economic and tax/regulatory environment, including the policy adopted the Monetary Policy Council regarding the level of interest rates and mandatory reserve, abolition of the systemic risk buffer and change in regulatory requirements for capital ratios, aid programs to reduce the effects of the Polish economy slowdown and primarily the development of the COVID-19 pandemic and the expected reduction in economic activity in Poland, reduction in the activity of clients and deterioration of their financial standing.

16.3 Impact of the COVID-19 pandemic

Operations of the PZU Group have been affected by the COVID-19 coronavirus disease pandemic, which reached Poland in March 2020.

In light of these new circumstances, the Polish government made a number of decisions, including:

since 12 March 2020, all institutions of higher education, schools, preschools and nurseries have been closed as a preventive measure;
since 15 March 2020, the Polish borders have been closed for air and rail traffic, passport controls have been imposed and only Polish citizens have been allowed to enter the country from abroad, provided that after crossing the border they go under a 14-day quarantine (these regulations have subsequently been extended until 13 April 2020), all stores except for grocery stores, drugstores and pharmacies have been closed;

100

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

since 25 March 2020, new safety rules have been in place, including a ban on the movement of people, except for the performance of professional activities or business tasks and the fulfillment of necessary needs related to matters of everyday life, gatherings of more than 2 people have been banned, restrictions on the use of public transport and movement on foot have been imposed;
since 1 April 2020, further restrictions have been introduced, including: limiting the number of customers in shops and service points to no more than three times the number of cash registers (twice the number of windows in the case of post offices), introducing an obligation for shoppers to wear protective gloves, suspension of activity of hairdresser, beauty and tattoo salons, mandatory closure of parks, boulevards and forests, allowing people under 18 years of age to be in public space with an adult carer only;
since 16 April 2020 the obligation to cover mouth and nose with a mask, clothing or parts of it in public space was introduced for nearly all persons over 4 years of age.

On 16 April 2020, the Polish government announced that the restrictions will begin to be lifted gradually, in four stages of a specific scope. By the date of approval of this report, the liberalization defined in Stage I (16 April 2020), Stage II (4 May 2020) and Stage III (18 May 2020) have been introduced. Under these regulations, some restrictions affecting retail commerce were eased (maximum number of people per shop), parks, boulevards and forests were opened and people over 13 years of age were allowed to move without an adult; subsequently, shopping malls, hotels, museums, libraries were opened under a new sanitary regime; then catering, hairdressing and cosmetic facilities were opened under a strictly defined sanitary regime.

The situation has no precedent and its impact on the economy is enormous. The first sectors of the economy that have been affected the most are those that depend on the mobility of the population, such as the transport, hotel, tourist and retail trade sectors. As a result of this supply-demand shock, business activity decelerated rapidly on a scale never before seen in the Polish economy after the market transformation period.

Colossal economic uncertainty has emerged, manifesting itself in massive slumps in the prices of equities, increases in the yields of corporate debt instruments and depreciation of emerging economy currencies (including the Polish zloty), followed by persistently high volatility levels.

On 2 March 2020, the Sejm of the Republic of Poland adopted the Act on Special Solutions Associated with Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Crises Caused by Them (Journal of Laws of 2020, Item 374, as amended), forming an element of the so-called special statutes (legislation governing in a particular manner a specific field, usually due to the ineffectiveness of general regulations or administrative processes in the relevant area), which was subsequently amended on several occasions.

The Polish government, much like the governments of many other countries across the world, has announced the introduction of a government assistance plan ("Anti-crisis Shield") the objectives of which include protection of jobs and provision of assistance to commercial undertakings.

Information on reduction of the NBP reference rate is presented in item 16.1 of the section entitled "Inflation, monetary policy, interest rates".

The Office of the Polish Financial Supervision Authority has developed a Supervisory Incentive Package for Security and Development in the insurance market, containing a collection of measures devised to strengthen the Polish insurance sector, in particular by ensuring protection of clients and reducing the impact of market fluctuations on the insurance sector.

The Business Continuity Plans that PZU had in place did not provide for an epidemic scenario of the COVID-19 type. After the announcement of a crisis situation in PZU on 25 February 2020, the Crisis Management Team has taken action to supplement the contingency plans, including in respect of transition to and performance of remote work and levels of response in the event of an epidemiological threat at PZU. At the same time, action has been taken to expand, reconfigure and scale up the capacity of the VPN environment as well as make developmental changes in the IT systems while maintaining business continuity and securing the interests of insurance clients.

Another component of these activities was an information campaign targeted at clients and dubbed "We operate remotely, but always near you", encouraging the remote use of the PZU Group's services: via the website, the "my PZU" mobile application or the hotline. Clients have been offered the option to postpone the date of payment of their premiums, break down the payment into installments or have the insurer temporarily take over the payment of premiums. The claims handling process has been

101

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

simplified. The scale of PZU Zdrowie's medical services provided remotely (over the phone or via a video call) has been expanded.

Activities associated with ensuring the safety of employees and clients of the PZU Group aimed at preventing new infections have resulted in additional costs.

Macroeconomic factors exert a strong impact on the PZU Group's growth and performance in the medium term - the most significant factors affecting the PZU Group are: the GDP growth rate, the level and rate of change in interest rates and the exchange rates.

The economic slowdown will have a delayed impact on the insurance area. The weaker GDP growth, the declines in consumption and industrial production will translate into lower demand for individual and corporate insurance.

As regards the non-life insurance portfolio, the following are some of the specific risks that have been identified:

risk of the loss of liquidity and bankruptcies among clients, which may translate into defaults in the payment of insurance premiums;
payment backlogs and a deteriorated ability to make payments may translate into a higher volume of claims paid under contract guarantees and all forms of payment insurance as well as materialization of risks related to business continuity insurance;
medical TPL insurance, where client claims may appear;
increase in claims handling expenses related to motor insurance, partly due to higher prices of imported spare parts as a result of the weaker Polish zloty.

At the same time, in motor insurance, the decrease in traffic caused by officially imposed restrictions on the movement of people translates into a lower risk, and in travel insurance the risk of payouts is limited by the provisions of the GTCI regarding the occurrence of a pandemic.

As regards the life insurance portfolio, the following are some of the specific risks that have been identified:

increase in benefits due to the higher morbidity and mortality rates, the risk of lapses and an increase in surrenders of unit- linked insurance.
risk of laps and increase of redemptions in unit-linked products.

In the investment area:

lower interest rates will translate into the portfolio performance, because the return on a significant portion of debt assets directly depends on the level of interest rates (corporate bonds and loans, certain treasury bonds);
in the longer term, as debt exposures acquired in the past with higher interest rates mature, the risk of reinvestment will increase;
volatility in financial markets will have a limited impact on the PZU Group's results, because the Group, in anticipation of a deterioration in the financial markets, has prepared its portfolio for a slowdown ahead of time by significantly reducing its exposure to the most volatile assets;
in the short term, the weaker Polish zloty should not significantly affect the results of those PZU Group companies that actively balance and hedge their currency positions (for the currency in question, liabilities correspond to assets).

In the banking area:

the expected economic slowdown, the lower rate of growth of GDP, consumption, industrial output and investments, and the likely increase in unemployment will translate into weaker demand for bank loans;
the challenging situation of households and enterprises will result in higher costs of credit risk (loan losses);
the low interest rate environment will translate directly into lower net interest income generated by banks (their revenues will be reduced due to the lower NBP reference rate, because most loans are based on a variable interest rate; on the other hand, banks have limited options when it comes to reducing the costs of deposits, especially current ones, because their cost even before the rate cuts was already close to zero).
the deterioration of the situation in the whole Polish banking sector may cause the need to launch sectoral initiatives (e.g. in respect of bad loan banks, forced restructuring of other banks, additional charges for the Bank Guarantee Fund), the costs of which will directly burden the whole sector.

102

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

The situation surrounding the spread of COVID-19 has been developing rapidly and its impact on PZU Group's financial standing is currently difficult to estimate. The PZU Group keeps monitoring on an ongoing basis how the changing environment affects all identified risks.

This notwithstanding, the PZU Management Board has evaluated the capacity of PZU Group companies to continue as a going concern, taking into account a number of factors, including: high solvency, potential impact of COVID-19 on the operating activity of PZU Group companies, including additional costs to be incurred, the planning of business continuity of PZU Group companies and their business partners, the structure of offered products and related risks, assessment of the liquidity and stability of funding, potential impairment of financial and non-financial assets, etc.

Based on its analysis, the PZU Management Board confirms its finding that there are no known material uncertainties arising from events or circumstances that might call into question the capacity of PZU Group companies to continue as a going concern during a period of at least 12 months following 31 December 2019.

17. Management Board's position on previously published result forecasts

PZU did not publish any standalone or consolidated result forecasts.

18. Issues, redemptions and repayments of debt securities and equity securities

In the 3-month period ended 31 March 2020, neither PZU nor its subsidiaries made any significant issues, redemptions or repayments of debt securities or equity securities.

19. Default or breach of material provisions of loan agreements

During the 3-month period ended 31 March 2020, in PZU and in its subsidiaries there were no instances of default on loans and borrowings or breaches of any material provisions of agreements on loans and borrowings in respect of which no corrective measures were taken until the end of the reporting period.

20. Granting of sureties or guarantees for loans or borrowings by PZU or its subsidiaries

In the 3-month period ended 31 March 2020, neither PZU nor its subsidiaries granted any sureties for a loan or borrowing or guarantees to any single entity or any subsidiary of such an entity where the total amount of outstanding sureties or guarantees would be significant.

21. Dividends

Only the profit captured in the standalone financial statements of the parent company prepared in accordance with PAS is subject to distribution.

On 21 April 2020 the PZU Management Board decided to submit a motion to PZU SA's Ordinary Shareholder Meeting to distribute PZU's net profit for the year ended 31 December 2019 in the amount of PLN 2,651 million as follows:

designate PLN 2,644 million for supplementary capital;
designate PLN 7 million for the Company Social Benefit Fund.

The proposed profit distribution complies with the stance of the KNF expressed in its letter of 26 March 2020 and sent to insurance and reinsurance undertakings in which KNF indicates that having regard for the current situation involving the epidemic announced in Poland and its possible further adverse economic consequences as well as their expected adverse impact on the insurance sector, the regulatory authority expects that insurance undertakings retain the entirety of profit earned

103

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

in previous years, notwithstanding the actions previously undertaken in this area. KNF has also emphasized that it is advisable for undertakings not to take other actions without making arrangements with the regulatory authority, in particular, actions falling outside the scope of their ongoing business and operating activity that could lead to weakening their capital base.

On 28 April 2020, the PZU Supervisory Board endorsed the PZU Management Board's motion.

On 26 May 2020, the Shareholder Meeting of PZU distributed the PZU's net profit for 2019 in accordance with the proposal put foward by the PZU Management Board.

22. Disputes

The PZU Group entities participate in a number of litigations, arbitration disputes and administrative proceedings. Typical litigations involving the PZU Group companies include disputes pertaining to concluded insurance agreements, disputes concerning labor relationships and disputes relating to contractual obligations. Typical administrative proceedings involving the PZU Group companies include proceedings related to the possession of real properties. Such proceedings and litigation are of a typical and repetitive nature and usually no particular case is of material importance to the PZU Group.

The majority of disputes involving the PZU Group companies concerned four companies: PZU, PZU Życie, Pekao and Alior Bank. Additionally, PZU and PZU Życie are parties to proceedings conducted before the President of the Office of Competition and Consumer Protection.

Estimates of the provision amounts for individual cases take into account all information available on the date of publishing this periodic report; however, this figure may change in the future. Insurance companies take disputed claims into account in the process of recognizing technical provisions for known losses, considering the probability of an unfavorable outcome of the dispute and estimating the amount likely to be awarded.

As at 31 March 2020, the total value of dispute in all 277,800 cases (as at 31 December 2019: 294,687 cases) pending before courts, arbitration bodies or public administration authorities in which PZU Group entities take part, was PLN 8,509 million (as at 31 December 2019: PLN 8,363 million). This amount included PLN 4,309 million (as at 31 December 2019: PLN 4,293 million) of liabilities and PLN 4,200 million (as at 31 December 2018: PLN 4,070 million) of receivables of PZU Group companies.

During the 3-month period ended 31 March 2020 and by the date of conveying this periodic report, the PZU Group companies were not involved in any proceedings conducted before a court, an arbitration body or a public administration authority which concerned any liabilities or receivables of PZU or any of its direct or indirect subsidiaries the unit value of which would be material, save for the issues described below.

22.1 Resolutions of the Ordinary Shareholder Meeting of PZU to distribute the profit earned in the financial year 2006

On 30 July 2007, an action was brought by Manchester Securities Corporation ("MSC") with its registered office in New York against PZU to repeal Resolution No. 8/2007 adopted by the Company's Ordinary Shareholder Meeting on 30 June 2007 to distribute PZU's profit for the financial year 2006 as contradicting good practices and aimed at harming the plaintiff as a shareholder of PZU.

The challenged resolution of the Ordinary Shareholder Meeting of PZU distributed the 2006 net profit of PLN 3,281 million as follows:

PLN 3,261 million was transferred to supplementary capital;
PLN 20 million was transferred to the Company Social Benefit Fund.

In its judgment of 22 January 2010, the Regional Court in Warsaw repealed the aforementioned resolution adopted by PZU's Ordinary Shareholder Meeting in its entirety. PZU has used all the available appeal measures, including a cassation appeal to the Supreme Court which, on 27 March 2013, dismissed the cassation appeal. The judgment is final and non-appealable.

PZU believes that repealing the aforementioned resolution of the PZU's Ordinary Shareholder Meeting will not give rise to shareholders' claim for a dividend payment by PZU.

104

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

As the judgment repealing Resolution No. 8/2007 became final, on 30 May 2012, Ordinary Shareholder Meeting of PZU adopted a resolution to distribute the profit for the financial year 2006 in a manner that reflects the distribution of profit in the repealed Resolution No. 8/2007. MSC filed an objection against the resolution of 30 May 2012 and the objection was recorded in the minutes.

On 20 August 2012, a copy of a statement of claim filed by MSC with the Regional Court in Warsaw was delivered to PZU. In the statement of claim, the Manchester Securities Corporation demanded that the resolution on the distribution of profit for the financial year 2006 adopted on 30 May 2012 by the PZU Ordinary Shareholder Meeting be repealed. According to the plaintiff, the value of the litigation is PLN 5 million. PZU then submitted a statement of defense requesting to dismiss the statement of claim in its entirety.

On 17 December 2013, the Regional Court passed a judgment in which it accepted the claim in its entirety and awarded the costs of proceedings from PZU to MSC. On 4 March 2014, PZU filed an appeal against the above judgment, contesting it in its entirety. On 11 February 2015, the Appellate Court in Warsaw handed down a judgment that changed the judgment of the Regional Court of 17 December 2013 in its entirety, dismissed MSC's claim and charged MSC with the court expenses. The Appellate Court's judgment is final and non-appealable. MSC challenged the Appellate Court's judgment in its entirety in a cassation appeal of 9 June 2015. PZU filed its reply to the cassation appeal. By decision of 19 April 2016, the Supreme Court refused to review MSC's cassation appeal. According to the provisions of the Code of Civil Procedure, the Supreme Court's ruling is final non-appealable and ends the proceedings in the case.

In the meantime on 16 December 2014, MSC summoned PZU to pay PLN 265 million as compensation in connection with repealing Resolution No. 8/2007 adopted by the PZU Ordinary Shareholder Meeting on 30 June 2007 to distribute PZU's profit for the financial year 2006. PZU refused to effect the performance, indicating the lack of grounds.

On 23 September 2015, a copy of the statement of claim with attachments was delivered to PZU in the case launched by MSC against PZU for payment of PLN 169 million with statutory interest from 2 January 2015 to the date of payment. The statement of claim includes a demand to pay compensation for depriving MSC and J.P. Morgan (MSC acquired the claim from J.P. Morgan) as minority shareholders of PZU of their share in profits for the financial year 2006 in connection with the adoption of Resolution No. 8/2007 on 30 June 2007 by the PZU Ordinary Shareholder Meeting. The case is pending before the Regional Court in Warsaw. On 18 December 2015, PZU's attorney replied to the statement of claim, requesting to dismiss it in its entirety. On 1 April 2016, MSC filed a pleading in which it responded to PZU's assertions, allegations and petitions and raised new arguments in the case. On 30 June 2016, PZU filed a response to MSC's most recent pleading along with requests for evidence. In its decision of 21 July 2016, the Court referred the case to a mediation procedure, to which PZU did not agree. In subsequent court sessions, the hearing of evidence will take place.

The Management Board of PZU believes that MSC's claims are groundless. As a result, as at 31 March 2020, no changes were made to the presentation of PZU's equity that could potentially stem from the repeal of resolution no. 8/2007 adopted by the PZU Ordinary Shareholder Meeting on the distribution of profit for the financial year 2006, including the line items "Supplementary capital" and "Retained earnings (losses)", and the funds in the Company Social Benefit Fund were not adjusted.

Other demands for payment pertaining to the distribution of PZU's profit for the 2006 financial year

On 13 November 2018 the Regional Court in Warsaw served a copy of the statement of claim lodged by Wspólna Reprezentacja SA in restructuring, which pertained to a claim against PZU for payment of PLN 34 million with statutory interest from 1 October 2015 to the payment date with court expenses. The claim comprises a claim for payment of damages for depriving the shareholders of their share of profits for the 2006 financial year. The plaintiff claims that the claims for damages were transferred by the shareholders to the plaintiff based on mandate agreements together with a fiduciary transfer of receivables and the claim pursued by the statement of claim is the total damage caused to the shareholders. PZU does not accept the claims as unjustified and submitted its statement of defense, requesting the claim to be dismissed it in its entirety. PZU did not consent to mediation. In subsequent court sessions, the hearing of evidence will take place.

105

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

22.2 Proceedings conducted by the President of the Office of Competition and Consumer Protection against PZU

On 30 December 2011, the President of the Office of Competition and Consumer Protection ("UOKiK") issued a decision to impose a fine of PLN 57 million on PZU for its use of a practice restricting competition and violating the prohibition prescribed in Article 6 Section 1 Item 3 of the Act on Competition and Consumer Protection by the execution, by PZU and Maximus Broker Sp. z

with its registered office in Toruń ("Maximus Broker"), of an agreement restricting competition in the domestic market for sales of group ADD insurance for children, youths and staff of educational institutions consisting of dividing the sales market by entity and transferring PZU's clients from the Kujawsko-Pomorskie voivodship to Maximus Broker for the provision of services in exchange for their recommending PZU as the insurer of choice and at the same time prohibited PZU from the use of this alleged practice.

The PZU Management Board does not agree with the determination of facts and the legal argumentation in the decision, because not all the evidence was taken into account when making the decision and an erroneous legal qualification was made.

On 18 January 2012 PZU submitted an appeal against the aforementioned decision (as a result of which it did not become final). In its appeal, PZU indicated the following, among other issues:

no agreement (other than a brokerage agreement) was entered into between PZU and Maximus Broker;
the President of the Office of Competition and Consumer Protection misunderstands the principles of execution of insurance agreements involving a broker;
the majority of insurance agreements involving Maximus Broker were entered into with insurance companies other than PZU;
PZU and Maximus Broker cannot and could not in the past conduct competitive activity in the markets in which they operate.

On 27 March 2015, the Regional Court in Warsaw issued a judgment in which it repealed the decision of the UOKiK President of 30 December 2011. By judgment of 6 December 2016, following an appeal of the UOKiK President, the Appellate Court in Warsaw repealed the judgment issued by the Regional Court in Warsaw and referred the case for re-examination. On 31 July 2017, the Regional Court in Warsaw issued a judgment in which it repealed the decision of the UOKiK President of 30 December 2011. On 4 October 2017, the UOKiK President filed an appeal with the Appellate Court in Warsaw. The Appellate Court in Warsaw, by its judgment of 23 January 2019, dismissed the appeal put forward by the UOKiK President. The verdict is final. The UOKiK President has filed a cassation appeal with the Supreme Court against the final judgment, to which PZU has given its reply. The Supreme Court accepted the cassation appeal filed by the President of UOKiK for examination.

PZU established a provision for this penalty in the amount of PLN 57 million as at 31 March 2020 and as at 31 December 2019.

22.3 Notification of PZU's claim to the bankruptcy estate of companies of the PBG Group

PZU is a creditor of PBG SA ("PBG") and Hydrobudowa Polska SA ("Hydrobudowa"), both companies with registered offices in Wysogotowo near Poznań, on account of insurance guarantees (contractual guarantees) issued and paid out.

In 2012, bankruptcy proceedings were initiated against PBG and Hydrobudowa. On 21 September 2012, PZU joined the proceedings by notifying its claims to the bankruptcy estate of the two companies.

PBG and Hydrobudowa belong to the same group in which PBG is the parent company. The two companies provided sureties for each other's liabilities. As a consequence, all claims submitted against the bankruptcy estate of Hydrobudowa in the amount of PLN 101 million were concurrently submitted against the bankruptcy estate of PBG.

On 8 October 2015, the Bankruptcy Court announced a decision in which it approved the composition with PBG's creditors and on 20 July 2016 it issued a decision to close the bankruptcy proceedings. The decision is final. Following the execution of the composition and reduction of claims to 20.93% of the reported receivables, PZU received 206,139 PBG bonds with a nominal value of PLN 21 million and 24,241,560 PBG shares with a nominal value of PLN 24 million. The carrying amount of PBG's shares as at 31 March 2020 was PLN 0.5 million (PLN 0.3 million as at 31 December 2019). The bonds, whose carrying amount was assessed to be zero, were recognized in off-balance sheet records only as at 31 March 2020 and 31 December 2019.

106

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

The first list of claims presented by Hydrobudowa's trustee in bankruptcy to the judge commissioner contained PZU SA's claims in the amount of PLN 16 million and the fourth supplementary list of claims contained PZU SA's claims in the amount of PLN 16 million. Accordingly, the total value of claims pursued by PZU on this account is PLN 32 million. In respect of claims for the amount of over PLN 66 million, on 24 October 2018 PZU filed an objection to the judge commissioner against the refusal to accept the submitted claim. With the decision of 23 January 2020 the Court accepted PZU's objection and increased PZU's claim on the fourth supplementary list of claims to PLN 83 million. The final list of claims submitted against the bankruptcy estate of Hydrobudowa has not been determined yet. Bankruptcy proceedings against Hydrobudowa are pending and the determination of the final list of claims is merely an initial step in these proceedings that precedes the drafting of the distribution plan (after the liquidation of the bankruptcy estate).

22.4 Class action against Alior Bank

On 5 March 2018, a natural person representing a group of 84 natural and legal persons filed a class action against Alior Bank to rule Alior Bank's liability for a loss caused by the improper performance of Alior Bank's disclosure obligations to clients and improper performance of agreements to provide services of accepting and forwarding purchase or sale orders of investment certificates of mutual funds managed previously by Fincrea TFI SA and currently by Raiffeisen Bank International AG (Spółka Akcyjna) Branch in Poland. The plaintiffs believe that Alior Bank failed to provide clients with information on the actual risk of investing in investment products, by which it exposed the clients to a loss resulting from the loss of value of investment certificates and loss of guaranteed profits. The PZU Group believes that the class action has no justified factual or legal grounds and therefore it should not be resolved favorably to the clients. With the decision of 27 September 2019 the court resolved to examine the case in a group procedure. The decision is final. Additionally, the PZU Group posits that the probability of outflow of funds on this account is estimated at a level below 50%; accordingly, as at 31 March 2020, no provision was established in relation to this action. At the current stage, it is not possible to estimate the possible financial consequences for Alior Bank and the PZU Group if the court hands down a resolution other than the one assumed by the PZU Group.

22.5 KNF's proceedings to impose a fine on Alior Bank

On 6 August 2019, KNF issued a decision pursuant to Article 167(2)(1) in conjunction with Article 167(1)(1) of the Financial Instruments Trading Act imposing a fine of PLN 10 million on Alior Bank (Alior Bank has paid the fine). The proceedings concerned the operation of Alior Bank and the Alior Bank's Brokerage House in terms of the distribution of investment certificates of funds previously managed by Fincrea TFI SA and currently by Raiffeisen Bank International AG (Spółka Akcyjna), Poland Branch. After reexamining the case (on Alior Bank's request), on 3 December 2019, KNF upheld the original decision, which Alior Bank challenged on 3 January 2020 with the Voivodship Administrative Court in Warsaw.

23. Evaluation of the PZU Group companies' standing by rating agencies

Issuer rating

Since 2004, PZU and PZU Życie have been subject to regular reviews by the rating agency S&P Global Ratings (S&P). The rating awarded to PZU and PZU Życie results from an analysis of financial data, competitive position, management and corporate strategy as well as the country's credit rating. It also includes outlook, which is an assessment of the future position of the Company if certain circumstances arise.

Current rating

PZU and PZU Życie hold an S&P rating of A- with a stable outlook. The rating was affirmed on 6 April 2020, when the agency changed the rating outlook from positive to stable.

107

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

The ratings outlook changed as a result of the deterioration in financial and business conditions in Poland due to the outbreak of the COVID-19 pandemic. According to S&P, this could affect the PZU Group's business; in particular, it may lead to a lower contribution from banking activity. At the same time, the analysts emphasized that the PZU Group's position should continue to be stable. This outlook reflects the viewpoint of the agency's analysts that the PZU Group will maintain its leading business position in Poland, a strong capital position and a stable result on insurance activity whereby it will be capable of withstanding any further potential deterioration in the business environment.

The table below depicts the most recent changes to the S&P rating for PZU and PZU Życie.

	Company name		Rating and outlook		Date of award/update		Previous rating and		Date of award/update
				outlook


	PZU
Financial strength rating		A- /Stable/		6 April 2020		A- /Positive/		14 June 2019

	Credit rating		A- /Stable/		6 April 2020		A- /Positive/		14 June 2019
PZU Życie

	Financial strength rating		A- /Stable/		6 April 2020		A- /Positive/		14 June 2019
Credit rating		A- /Stable/		6 April 2020		A- /Positive/		14 June 2019

Poland's credit rating

On 10 April 2020, S&P announced its decision to affirm Poland's rating at A-/A-2 for long- and short-term liabilities in foreign currency, respectively, and at A/A-1 for long- and short-term liabilities in the domestic currency, respectively. The rating outlook remained stable.

The agency's analysts have assessed that the negative effects of the COVID-19 pandemic will push the Polish economy to a 2% recession in 2020, however they expect a strong recovery in 2021 when they believe Poland's GDP may increase by 4.8%.

24. Related party transactions

24.1 Related party transactions concluded by PZU or subsidiaries on non-arm's length conditions

In the 3-month period ended 31 March 2020, neither PZU nor its subsidiaries executed any transaction with their related parties that were of material significance individually or collectively and were executed on non-arm's length conditions.

24.2 Other related party transactions

Balances and turnovers resulting	1 January - 31 March 2020	1 January - 31 December 2019	1 January - 31 March 2019
from commercial transactions	and as at 31 March 2020	and as at 31 December 2019	and as at 31 March 2019
between the PZU Group and	Key	Other related	Key	Other related	Key	Other related
related parties	management	parties 1)	management	parties 1)	management	parties 1)
Gross written premium	-	1	-	4	-	2

in non-life insurance	-	1	-	4	-	2
in life insurance (including the
volumes from investment	-	-	-	-	-	-
contracts)

Other income	-	-	-	-	-	-
Costs	-	-	-	-	-	-
Receivables				-		1
Liabilities under deposits	1	-	-	-	-	-
Contingent assets	-	-	-	-	-	-
Contingent liabilities	-	-	-	-	-	-

Associates measured by the equity method

108

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

25. Other information

25.1 KNF Office inspections in PZU and PZU Życie

In the period from 7 to 25 January 2019 KNF conducted an inspection into PZU Życie's adherence to the obligations stemming from the act on counteracting money laundering and financing of terrorism. On 8 April 2019 KNF issued 5 post-inspection recommendations with execution deadlines of 30 June 2019, 31 December 2019 and 31 January 2020. On 12 July 2019, PZU Życie informed the regulatory authority that it has carried out the recommendations for which the implementation deadline expired on 30 June 2019, and on 10 January 2020 the company reported that it has carried out the recommendation for which the implementation deadline expired on 31 December 2019. By letter of 15 October 2019, at the request of PZU Życie, KNF agreed to postpone the time limit for the implementation of its two recommendations, from 31 December 2019 and 31 January 2020 to 30 April 2020 and 31 May 2020, respectively. On 20 April 2020, PZU Życie informed the regulatory authority that it has carried out the recommendation for which the time limit was to expire on 30 April 2020, and on the extent of implementation of a recommendation carrying a 31 May 2020 time limit.

In the period from 9 January to 8 February 2019 KNF conducted a supervisory visit to PZU Życie with respect to the fulfillment of the requirements concerning the risk management system in terms of underwriting insurance risk. On 2 May 2019 PZU Życie received a written summary of the supervisory visit in which the regulatory authority identified an infringement of Article 21 of the Insurance Activity Act. On 16 May, 19 June and 5 July 2019, PZU Życie conveyed to KNF its position and information regarding the actions taken to ensure that the insurance undertaking's business is conducted in accordance with the law. On 25 July 2019, KNF provided recommendations to be implemented by 30 September and 30 November 2019 and 31 March 2020. On 7 October 2019 and 9 December 2019, PZU Życie informed the regulatory authority of its implementation of the recommendations for which the execution deadline expired on 30 September 2019 and 30 November 2019, respectively. On 7 April 2020, PZU Życie informed the regulatory authority of its implementation of the recommendations.

In the period from 1 October to 30 November 2019, KNF carried out an inspection of PZU Życie's asset standing in the context of the company's investment policy. On 31 December 2019, PZU Życie received an inspection report and on 14 January 2020 it submitted additional clarifications. On 29 January 2020, KNF presented its stance on PZU Życie's comments and reservations regarding the contents of the report. On 27 February 2020, PZU Życie received a recommendation to adjust its operations to the provisions of Article 267(1) of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014, supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), as amended, with the time limit for such adjustment set for 5 May 2020. On 23 April 2020, PZU Życie put forward a motion to extend the time limit for performing the recommendation until 31 December 2020. On 28 April 2020, KNF asked PZU Życie to provide additional information related to implementation of the recommendation. On 4 May 2020, PZU Życie responded, providing the relevant explanations and asked KNF to give its consent to change the time limit for the recommendation to 30 September 2020. On 5 May 2020, KNF set the time limit for the implementation of the recommendation at 30 September 2020, while obligating PZU Życie to provide, on the last day of each month, information on the performance of respective items in the schedule and the possible explanations if the performance is delayed.

The Management Board of PZU believes that the results of the audit have not exerted any impact on the consolidated financial statements.

25.2 Cases involving Alior Leasing sp. z o.o.

Since the beginning of 2019, Alior Leasing sp. z o.o. has received several letters from dismissed members of the company's management board containing a proposal for Alior Leasing sp. z o.o. to reach an amicable settlement of the dispute over the reasons for an early termination of the management contracts and payment of a portion of the benefits under the management option plan. The management option plan covered the dismissed members of the management board of Alior Leasing sp. z o.o. and certain employees of the company. Additionally, in a letter of 28 January 2020, the dismissed members of the Alior Leasing sp. z o.o. management board extended the severance payment claim by adding the payment of benefits under the management program mentioned above (the extension of the statement of claim specified that the extended claim amount did not exhaust all the claims under the management option plan). In the opinion of the PZU Group, the likelihood that the court awards the

109

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in millions of PLN)

dismissed members of the management board of Alior Leasing sp. z o.o. the contested benefits under the management option plan is low. Accordingly, no relevant provision was recognized in the consolidated financial statements.

Alior Leasing sp. z o.o. has identified the risk of possible claims against the company filed by third parties, which may result from actions of some employees and associates of Alior Leasing sp. z o.o. As at the date or preparing the consolidated financial statements, no claims have been filed on this account. The PZU Group believes that there are no circumstances justifying recognition of a provision on this account.

The PZU Group will not disclose any further information regarding the possible third party claims mentioned above, to avoid the weakening of its status and position in the potential proceedings.

25.3 Lease agreement for the building of PZU's new Head Office

On 4 February 2020 the PZU Management Board adopted a resolution to select an offer in the proceeding to lease headquarters for the PZU Head Office and sign a letter of intent with Bitra Enterprise 1 sp. z o.o., a company belonging to the Skanska Group. According to the resolution in question, the PZU Management Board accepted a scenario on how to proceed in the selection of headquarters for the PZU Head Office involving the conclusion of a lease agreement for office and storage space and parking spaces with Bitra Enterprise 1 sp. z o.o., with its registered office at Al. Solidarności 173, 00-877 Warsaw ("Lessor") and approved the selection of building "Y"; it is under construction in the Generation Park complex situated at Rondo Daszyńskiego 4 in Warsaw ("Building") as the new headquarters of the PZU Head Office. PZU and PZU Życie signed a letter of intent with the Lessor on 4 February 2020 to specify the preliminary terms and conditions of the agreement to lease office space, office and commercial space, storage space and parking spaces. The letter of intent contemplates that the future lease agreement will contain contractual penalties regarding the Lessor's liability for delays in handing over the leased facility, hindrances and impediments to usage of the leased area and violations of the non-compete clause and right of first refusal to purchase the Building. The letter of intent contains a declaration on how to proceed and sign the lease agreement by 29 May 2020 provided that the parties reach an agreement on all of the other terms and conditions of lease and agree upon the wording of the lease agreement.

On 27 May 2020, PZU made a decision to continue negotiations to define the final terms and conditions of the lease agreement. The extension of negotiations is related to the epidemiological situation in Poland.

The total estimated gross value of the prospective agreement to lease the Building over the 10 years of its duration is approximately PLN 805 million, while the gross incremental costs related to relocation are approximately PLN 86 million. These amounts may vary as a result of specific arrangements concerning the final arrangement, amount of space leased, the final scope of adaptation work, the commencement date of the lease agreement and the date of translating some of the costs and financial incentives between EUR and PLN.

The selection of this Building and the signing of the letter of intent do not imply that this transaction will be executed.

110

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements according to IFRS for the period of 3 months ended 31 March 2020 (in thousands of PLN)

PZU's quarterly unconsolidated financial information (in compliance with PAS)

1. Interim balance sheet

ASSETS		31 March		31 December		31 March
2020	2019	2019


	I. Intangible assets, including:		304,872		316,213		323,428
-	goodwill	-	-	-

	II. Investments		37,303,574		36,659,625		38,633,760

1.	Real property	330,775	332,768	343,978

	2.	Investments in subordinated entities,		16,581,832		16,480,547		16,440,170
	of which:

		- investments in subordinated entities measured by the	16,063,268	15,966,388	16,039,545
		equity method

	3.	Other financial investments		20,390,967		19,846,310		21,849,612
4.	Deposits with ceding enterprises	-	-	-
	III. Net assets of a life insurance company if the investment risk is		-		-		-
	borne by the policyholder

IV. Receivables	2,455,500	2,084,819	3,037,979

	1.	Receivables on direct insurance		1,724,106		1,740,713		1,717,704
		1.1. From subordinated entities	2,391	2,581	1,318

		1.2. From other entities		1,721,715		1,738,132		1,716,386
2.	Reinsurance receivables	281,088	114,501	301,816
		2.1. From subordinated entities		236,845		84,424		242,490
		2.2. From other entities	44,243	30,077	59,326
	3.	Other receivables		450,306		229,605		1,018,459
		3.1. Receivables from the state budget	32,574	2,001	8,500
		3.2. Other receivables		417,732		227,604		1,009,959
		a) from subordinated entities	133,603	101,075	38,023

		b) from other entities		284,129		126,529		971,936
V. Other assets	316,790	251,987	1,518,776

	1.	Property, plant and equipment		116,992		125,846		114,885
2.	Cash	199,798	126,141	1,403,891

	3.	Other assets		-		-		-
VI. Prepayments and accruals	2,517,259	2,283,770	2,516,937
	1.	Deferred tax assets		-		-		-


2.	Deferred acquisition costs	1,504,236	1,344,569	1,483,779
	3.	Accrued interest and rents		-		-		-
4.	Other prepayments and accruals	1,013,023	939,201	1,033,158
	VII. Unpaid share capital		-		-		-
VIII. Treasury shares	-	-	-
	Total assets		42,897,995		41,596,414		46,030,880

111

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements according to IFRS for the period of 3 months ended 31 March 2020 (in thousands of PLN)

Interim balance sheet (continued)

EQUITY AND LIABILITIES		31 March		31 December		31 March
2020	2019	2019


	I. Equity		15,157,272		14,956,862		14,668,437
1.	Share capital	86,352	86,352	86,352

	2.	Supplementary capital		5,814,253		5,814,241		5,507,577

3.	Revaluation reserve	6,715,828	6,405,257	6,106,116

	4.	Other reserve capital		-		-		-
5.	Retained earnings (losses)	2,651,012	-	2,731,561

	6.	Net profit (loss)		(110,173)		2,651,012		236,831
7.	Charges to net profit during the financial year (negative figure)	-	-	-
	II. Subordinated liabilities		2,258,706		2,279,173		2,257,909
III. Technical provisions	23,818,017	23,114,021	23,331,909
	IV. Reinsurers' share in technical provisions (negative figure)		(1,573,882)		(1,541,000)		(1,413,502)
V. Estimated salvage and subrogation (negative figure)	(92,828)	(107,764)	(97,572)

	1.	Gross estimated salvage and subrogation		(95,755)		(110,822)		(99,700)
2.	Reinsurers' share in estimated salvage and subrogation	2,927	3,058	2,128

	VI. Other provisions		602,815		562,642		589,521
1.	Provisions for pension benefits and other compulsory	57,083	45,681	52,726
	employee benefits

	2.	Deferred tax liability		468,621		439,661		447,125
3.	Other provisions	77,111	77,300	89,670
	VII. Liabilities for reinsurers' deposits		-		-		-
VIII. Other liabilities and special-purpose funds	1,790,276	1,028,124	5,718,661
	1.	Liabilities on direct insurance		459,794		420,799		361,992
		1.1. - to subordinated entities	5,599	13,937	2,684

		1.2. To other entities		454,195		406,862		359,308
2.	Reinsurance liabilities	502,945	78,341	282,708

		2.1. - to subordinated entities		19,021		10,724		43,736
		2.2. To other entities	483,924	67,617	238,972

	3.	Liabilities on the issue of own debt securities and drawn		-		-		3,693,526
	loans

4.	Liabilities to credit institutions	12	12	213

	5.	Other liabilities		710,750		429,031		1,275,857
		5.1. Liabilities to the state budget	115,999	74,570	32,717

		5.2. Other liabilities		594,751		354,461		1,243,140
		a) to subordinated entities	144,715	122,608	17,092

		b) to other entities		450,036		231,853		1,226,048
6.	Special-purpose funds	116,775	99,941	104,365

	IX. Prepayments and accruals		937,619		1,304,356		975,517
1.	Accrued expenses	856,802	1,241,848	915,722
	2.	Negative goodwill		-		-		-
3.	Deferred income	80,817	62,508	59,795
	Total equity and liabilities		42,897,995		41,596,414		46,030,880

112

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements according to IFRS for the period of 3 months ended 31 March 2020 (in thousands of PLN)

Interim balance sheet (continued)

			31 March		31 December	31 March
		2020	2019	2019

	Book value		15,157,272		14,956,862	14,668,437
Number of shares	863,523,000	863,523,000	863,523,000

	Book value per share (in PLN)		17.55		17.32	16.99
Diluted number of shares	863,523,000	863,523,000	863,523,000
	Diluted book value per share		17.55		17.32	16.99
	(PLN)

2. Interim statement of off-balance sheet line items

Off-balance sheet items		31 March		31 December		31 March
2020	2019	2019


	1.	Contingent receivables, including:		4,164,407		4,256,977		3,956,832
		1.1. Guarantees and sureties received	2,766	2,957	3,040

		1.2. Other 1)		4,161,641		4,254,020		3,953,792
2.	Contingent liabilities, including:	936,862	1,149,099	4,637,150
		2.1. Guarantees and sureties given		5,343		6,052		3,698,447
		2.2. Accepted and endorsed bills of exchange	-	-	-
		2.3. Assets subject to the obligation of resale		-		-		-
		2.4. Other liabilities secured on assets or income	-	-	-

	3.	Reinsurance collateral instituted in favor of the insurance		-		-		-
	company

4.	Reinsurance collateral instituted by the insurance company in	-	-	-
favor of ceding companies

	5.	Third party assets not recognized in assets		121,842		122,054		109,557
6.	Other off-balance sheet line items	-	-	-

	Total off-balance sheet line items		5,223,111		5,528,130		8,703,539

This item includes chiefly: security received in the form of a transfer of the debtor's assets, a mortgage on the debtor's assets, other contingent receivables, etc.

113

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements according to IFRS for the period of 3 months ended 31 March 2020 (in thousands of PLN)

3. Interim revenue account of non-life insurance

Revenue account of non-life insurance		1 January -		1 January -
	31 March 2020		31 March 2019

	I. Premium income (1-2-3+4)		3,007,807		2,990,025
1.	Gross written premium	3,757,285	3,728,963

	2.	Reinsurers' share in gross written premium		113,880		64,101
3.	Movement in the provision for unearned premiums and provision for unexpired risks,	591,900	613,746
	gross

	4.	Reinsurers' share in the movement in provision for unearned premiums		(43,698)		(61,091)
II. Net investment income (including costs) transferred from the general profit and loss	65,441	61,926
account


	III. Other net technical income		53,193		55,718
IV. Claims and benefits (1+2)	1,848,098	1,871,713

	1.	Net claims and benefits paid		1,797,756		1,723,564
		1.1. Gross claims and benefits paid	1,901,214	1,743,750

		1.2. Reinsurers' share in claims and benefits paid		103,458		20,186
2.	Movement in provision for outstanding claims and benefits, net of reinsurance	50,342	148,149
		2.1. Movement in provision for outstanding claims and benefits, gross		127,053		282,881
		2.2. Reinsurers' share in the movement in the provision for outstanding claims and	76,711	134,732
		benefits


	V. Movement in other technical provisions, net of reinsurance		-		-
1.	Movement in other technical provisions, gross	-	-

	2.	Reinsurers' share in the movement in other technical provisions		-		-
VI. Net bonuses and discounts with the movement in provisions	216	63

	VII. Insurance activity expenses		784,694		755,619
1.	Acquisition expenses, including:	609,137	601,030
		- movement in deferred acquisition costs		(159,666)		(157,189)
2.	Administrative expenses	181,841	165,159
	3.	Reinsurance commissions and profit participation		6,284		10,570
VIII. Other net technical charges	123,672	122,280
	IX. Movement in loss ratio (risk) equalization provisions		-		-
X. Technical result of non-life insurance	369,761	357,994

114

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

4. Interim general profit and loss account

General profit and loss account		1 January -		1 January -
	31 March 2020		31 March 2019


	I. Technical result of non-life insurance or life insurance		369,761		357,994
II. Investment income	166,968	161,086

	1.	Investment income on real estate		1,473		1,478
2.	Investment income from related parties	4,346	4,505

		2.1. on ownership interests or shares		-		1,215
		2.2. on borrowings and debt securities	3,993	3,183
		2.3. on other investments		353		107
3.	Other financial investment income	152,992	82,352
		3.1. on ownership interests, shares, other variable income securities, participation		3,948		2,742
		units and investment certificates in mutual funds

		3.2. on debt securities and other fixed income securities	105,946	68,256

		3.3. on term deposits with credit institutions		3,556		1,759
		3.4. on other investments	39,542	9,595
	4.	Gain on revaluation of investments		-		-
5.	Gain on realization of investments	8,157	72,751
	III. Unrealized investment gains		249,121		126,218
IV. Net investment income after including costs transferred from the technical life insurance	-	-
account


	V. Investment activity expenses		442,399		61,398
1.	Real estate maintenance expenses	937	976

	2.	Other investment activity expenses		12,069		10,959
3.	Loss on revaluation of investments	420,158 1)	-
	4.	Loss on realization of investments		9,235		49,463
VI. Unrealized investment losses	258,173	96,828
	VII. Net investment income after including costs transferred to the Revenue account of non-		65,441		61,926
	life insurance

VIII. Other operating income	67,990	63,558

	IX. Other operating expenses		146,512		165,533
X. Operating profit (loss)	(58,685)	323,171

	XI. Extraordinary gains		-		-
XII. Extraordinary losses	-	-
	XIII. Share of the net profit (loss) of subordinated entities measured by the equity method		28,530		870
XIV. Profit (loss) before tax	(30,155)	324,041
	XV. Income tax		80,018		87,210
	a) current part	4,978	(7,765)
	b) deferred part		75,040		94,975
XVI. Other compulsory reductions in profit (increases in losses)	-	-

	XVII.	Net profit (loss)		(110,173)		236,831

including impairment loss on goodwill (in the amount of PLN 420,158 thousand) arising from the acquisition of Alior Bank. Additional information on this matter is presented in section 10.

				1 January -		1 January -
				31 March 2020		31 March 2019
	Net profit (loss) (annualized) 1)			(443,113)		960,481
Weighted average number of common shares	863,523,000	863,523,000
	Earnings (loss) per common share (PLN) 1)		(0.13)		0.27
Weighted average diluted number of common shares	863,523,000	863,523,000

	Diluted earnings (loss) per common share (PLN) 1)		(0.13)		0.27

Calculation based on the number of calendar days in the period.

115

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

5. Interim statement of changes in equity

Statement of changes in equity		1 January -		1 January -		1 January -
	31 March 2020		31 December 2019		31 March 2019


	I. Equity at the beginning of the period (Opening Balance)		14,956,862		13,924,661		13,924,661
	a) changes in the accepted accounting policies	-	-	-

	I.a. Equity at the beginning of the period (Opening Balance), after		14,956,862		13,924,661		13,924,661
	adjustments to ensure comparability

	1. Share capital at the beginning of the period	86,352	86,352	86,352

	1.1. Change in share capital		-		-		-
	a) increases	-	-	-

	b) decreases		-		-		-
	1.2. Share capital at the end of the period	86,352	86,352	86,352

	2. Supplementary capital at the beginning of the period		5,814,241		5,507,572		5,507,572
	2.1. Change in supplementary capital	12	306,669	5

	a) additions (by virtue of):		12		306,669		5
	- distribution of profit (above the statutorily	-	306,374	-
	required amount)


	- from revaluation reserve - by sale and		12		295		5
	liquidation of fixed assets

	b) decreases	-	-	-

	2.2. Supplementary capital at the end of the period		5,814,253		5,814,241		5,507,577
	3. Revaluation reserve at the beginning of the period	6,405,257	5,599,176	5,599,176
	- changes in the accepted accounting principles (policy)		-		-		-
	3.a. Revaluation reserve at the beginning of the period	6,405,257	5,599,176	5,599,176
	(Opening Balance), after adjustments to ensure comparability


	3.1. Change in the revaluation reserve		310,571		806,081		506,940
	a) additions (by virtue of):	674,962	968,880	583,312

	- valuation of financial investments		643,323		940,809		583,312
	- additions by virtue of disposal of available for	6,702	3,486	-
	sale instruments

	- additions by virtue of hedge accounting		24,937		24,585		-
	b) reductions (by virtue of)	364,391	162,799	76,372

	- valuation of financial investments		335,327 1)		101,479		76,367
	- reductions by virtue of the disposal of	7,719	32,311	-
	instruments available for sale

	- sale of fixed assets		12		295		5
	- reductions by virtue of hedge accounting	21,333	28,714	-

	3.2. Revaluation reserve at the end of the period		6,715,828		6,405,257		6,106,116

116

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

Interim statement of changes in equity (continued)

Statement of changes in equity		1 January -		1 January -		1 January -
	31 March 2020		31 December 2019		31 March 2019

	4. Other reserve capital at the beginning of the period		-		-		-
	4.1. Change in other reserve capital	-	-	-
	a) increases		-		-		-
	b) decreases	-	-	-
	4.2. Other reserve capital at the end of the period		-		-		-
	5. Retained earnings (losses) at the beginning of the period	2,651,012	2,731,561	2,731,561

	5.1. Retained earnings at the beginning of the period		2,651,012		2,731,561		2,731,561
	a) changes in the accepted accounting policies	-	-	-

	5.2. Retained earnings at the beginning of the period,		2,651,012		2,731,561		2,731,561
	after adjustments to ensure comparability

	a) increases	-	-	-

	b) decreases		-		2,731,561		-
	- transfers to supplementary capital	-	306,374	-

	- disbursement of dividends		-		2,417,864		-
	- transfers/charges to the Company Social Benefit	-	7,323	-
	Fund


	5.3. Retained earnings at the end of the period		2,651,012		-		2,731,561
	5.4. Retained losses at the beginning of the period	-	-	-

	a) changes in the accepted accounting policies		-		-		-
	b) corrections of errors	-	-	-

	5.5. Retained losses at the beginning of the period, after		-		-		-
	adjustments to ensure comparability

	a) increases	-	-	-

	b) decreases		-		-		-
	5.6. Retained losses at the end of the period	-	-	-

	5.7. Retained earnings (losses) at the end of the period		2,651,012		-		2,731,561
	6. Net result	(110,173)	2,651,012	236,831

	a) net profit		-		2,651,012		236,831
	b) net loss	110,173	-	-

	c) Charges to profit		-		-		-
II. Equity at the end of the period (Closing Balance)	15,157,272	14,956,862	14,668,437

including impairment loss on goodwill (in the amount of PLN 34,842 thousand) arising from the acquisition of Alior Bank. Additional information on this matter is presented in section 10.

117

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

6. Interim cash flow statement

Cash flow statement		1 January -		1 January -		1 January -
	31 March 2020		31 December 2019		31 March 2019


	A. Cash flows from operating activities
I. Proceeds	4,094,899	14,438,482	3,650,232

	1. Proceeds on direct activity and inward reinsurance		3,751,617		13,233,994		3,438,855
	1.1. Proceeds on gross premiums	3,624,429	13,070,733	3,398,459

	1.2. Proceeds on recoveries, recourses and claim refunds		117,865		136,701		31,428
	1.3. Other proceeds on direct activity	9,323	26,560	8,968
	2. Proceeds from outward reinsurance		132,417		382,164		64,397
	2.1. Payments received from reinsurers for their share of	114,021	282,277	38,445
	claims paid


	2.2. Proceeds on reinsurance commissions and profit		17,945		83,247		23,656
	participation

	2.3. Other proceeds from outward reinsurance	451	16,640	2,296
	3. Proceeds from other operating activity		210,865		822,324		146,980
	3.1. Proceeds for acting as an emergency adjuster	92,629	360,547	74,112

	3.2. Sale of intangible assets and non-investment		1,145		7,425		1,554
	property, plant and equipment

	3.3. Other proceeds	117,091	454,352	71,314

	II. Expenditures		3,388,005		13,317,836		3,100,597
	1. Expenditures on direct activity and inward reinsurance	2,845,954	11,141,626	2,648,626
	1.1. Gross premium refunds		77,367		272,824		75,807
	1.2. Gross claims and benefits paid	1,692,308	6,971,858	1,594,058
	1.3. Acquisition expenditures		495,066		1,705,833		444,742
	1.4. Administrative expenditures	386,786	1,450,393	340,402

	1.5. Expenditures for claims handling and pursuit of		81,310		322,824		76,273
	subrogation

	1.6. Commissions paid and profit-sharing on inward	78,325	272,868	81,509
	reinsurance

	1.7. Other expenditures on direct activity and inward		34,792		145,026		35,835
	reinsurance

	2. Expenditures on outward reinsurance	142,737	576,286	157,421

	2.1. Premiums paid for reinsurance		142,659		576,003		157,345
	2.2. Other expenditures on outward reinsurance	78	283	76
	3. Expenditures on other operating activity		399,314		1,599,924		294,550
	3.1. Expenditures for acting as an emergency adjuster	43,759	175,692	39,017
	3.2. Purchase of intangible assets and non-investment		21,431		107,156		30,518
	property, plant and equipment

	3.3. Other operating expenditures	334,124	1,317,076	225,015

	III. Net cash flows from operating activities (I-II)		706,894		1,120,646		549,635

118

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

Interim cash flow statement (continued)

Cash flow statement		1 January -		1 January -		1 January -
	31 March 2020		31 December 2019		31 March 2019


	B. Cash flow on investing activity
I. Proceeds	30,317,317	213,107,377	59,563,267

	1.	Sale of real estate		154		16,806		-
2.	Sale of ownership interests and shares in subordinated	-	7,739	-
	entities


	3.	Sale of ownership interests and shares in other entities
	and participation units and investment certificates in mutual		-		239,999		49,839
	funds
4.	Realization of debt securities issued by subordinated
	entities and amortization of the loans granted to these	-	10,000	-
	entities
	5.	Realization of debt securities issued by other entities		157,810		8,661,781		4,267,470
6.	Liquidation of term deposits with credit institutions	10,944,011	144,819,006	37,896,282

	7.	Realization of other investments		19,144,951		57,088,308		17,290,860
8.	Proceeds from real estate	1,990	7,025	1,798

	9.	Interest received		65,428		484,673		50,990
	10. Dividends received	188	1,759,995	165

	11. Other investment proceeds		2,785		12,045		5,863
II. Expenditures	30,920,303	209,011,004	59,763,030

	1.	Purchase of real estate		536		3,079		290
2.	Purchase of ownership interests and shares in	4,200	1,046	26
	subordinated entities

	3.	Purchase of ownership interests and shares in other
	entities, participation units and investment certificates in		12,250		126,089		68,567
	mutual funds
4.	Purchase of debt securities issued by subordinated	-	109,018	-
	entities and extension of loans to these entities


	5.	Purchase of debt securities issued by other entities		423,264		8,141,405		4,490,915
6.	Purchase of term deposits with credit institutions	10,980,702	144,084,939	38,809,338

	7.	Purchase of other investments		19,476,499		56,460,378		16,365,290
8.	Expenditures to maintain real estate	13,495	54,837	17,559
	9.	Other expenditures for investments		9,357		30,213		11,045
III. Net cash flows from investing activities (I-II)	(602,986)	4,096,373	(199,763)

119

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

Interim cash flow statement (continued)

Cash flow statement		1 January -		1 January -		1 January -
	31 March 2020		31 December 2019		31 March 2019


	C. Cash flows from financing activities
I. Proceeds	146,665	24,964,616	17,415,158

	1.	Net proceeds from issuing shares and additional capital		-		-		-
	contributions

2.	Loans, borrowings and issues of debt securities	146,665	24,964,616	17,415,158

	3.	Other financial proceeds		-		-		-
II. Expenditures	187,543	31,261,040	17,582,733

	1.	Dividends		153		2,417,864		-
2.	Other expenditures for distribution of profits besides	-	-	-
	disbursement of dividends

	3.	Purchase of treasury shares		-		-		-
4.	Amortization of loans and borrowings and redemption of	146,671	28,710,674	17,542,127
	own debt securities


	5.	Interest on loans and borrowings and issued debt		40,719		132,502		40,606
	securities

6.	Other financial expenditures	-	-	-
	III. Net cash flows from financing activities (I-II)		(40,878)		(6,296,424)		(167,575)
D. Total net cash flows (A.III+/-B.III+/-C.III)	63,030	(1,079,405)	182,297

	E. Balance sheet change in cash, including:		73,657		(1,095,394)		182,356
	- movement in cash due to foreign exchange differences	10,627	(15,989)	59

	F. Cash at the beginning of the period		126,141		1,221,535		1,221,535
G. Cash at the end of the period (F+/-E), including:	199,798	126,141	1,403,891

	- restricted cash		52,643		28,512		43,004

7. Introduction

This quarterly standalone financial information on PZU has been prepared in accordance with PAS for the reasons described in the Introduction and supplemented with the definition of PAS.

8. Key accounting principles (accounting policy)

Detailed accounting principles (policy) are presented in the standalone financial statements of PZU for 2019.

9. Changes in accounting policies

In the 3-month period ended 31 March 2020, no changes were made to the accounting principles (policy).

10. Impairment loss on the goodwill arising from the acquisition of Alior Bank

Following the identification of signs of possible impairment, Alior Bank's goodwill was tested for impairment. The test showed impairment of the goodwill arising from the acquisition of Alior Bank in the amount of PLN 455000 million, out of which PLN 420,158 thousand was recognized in the general profit and loss account in the "Loss on revaluation of investments" item and PLN 34,842 thousand was charged to the revaluation reserve. Additional information on the impairment test is presented in item 8.16.1.

The difference between the impairment loss amounts recognized in standalone PZU data and the consolidated data of the PZU Group is due to the different accounting principles used to prepare the two financial statements. Detailed accounting principles governing the measurement of goodwill are presented respectively in the standalone and consolidated financial statements for 2019.

120

Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group

Condensed interim consolidated financial statements for the period of 3 months ended 31 March 2020 (in thousands of PLN)

Signatures of the PZU Management Board Members:

Name

Beata Kozłowska-Chyła

Tomasz Kulik

Ernest Bejda

Adam Brzozowski

Marcin Eckert

Elżbieta Häuser-Schöneich

Maciej Rapkiewicz

Małgorzata Sadurska

Position

Acting President of the PZU

Management Board

Member of the PZU

Management Board

Member of the PZU

Management Board

Member of the PZU

Management Board

Member of the PZU

Management Board

Member of the PZU

Management Board

Member of the PZU

Management Board

Member of the PZU

Management Board

..........................................

(signature)

..........................................

(signature)

..........................................

(signature)

..........................................

(signature)

..........................................

(signature)

..........................................

(signature)

..........................................

(signature)

..........................................

(signature)

Person responsible for drawing up the consolidated financial statements:

Katarzyna Łubkowska	Director of the
Accounting Department

Warsaw, 28 May 2020

..........................................

(signature)

121

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PZU - Powszechny Zaklad Ubezpieczen SA published this content on 29 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 May 2020 05:50:09 UTC

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Company Profile

Powszechny Zaklad Ubezpieczeñ Spólka Akcyjna is one of the leading insurance groups in Poland. The group also develops pension and investment funds management activities. Gross written premiums break down by activity as follows: - non-life insurance (64.3%): car insurance (57.8% of gross written premiums), fire and damage insurance (22.3%), accident and health insurance (6.8%), liability insurance (6%) and other (7.1%); - life insurance (35.7%). Gross written premiums are distributed geographically as follows: Poland (91.2%), the Baltic states (7.4%) and Ukraine (1.4%).

Sector

Multiline Insurance & Brokers

Calendar

2024-05-22 - Q1 2024 Earnings Release

Related indices

STOXX EUROPE 600 (EUR)

More about the company

Income Statement Evolution

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Ratings for Powszechny Zaklad Ubezpiecze? Spólka Akcyjna

Trading Rating

Investor Rating

ESG Refinitiv

A-

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Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

50.7 PLN

Average target price

52.39 PLN

Spread / Average Target

+3.33%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

Sector Other Multiline Insurance & Brokers

	1st Jan change	Capi.
POWSZECHNY ZAKLAD UBEZPIECZE? SPÓLKA AKCYJNA	+7.34%	10.78B
ALLIANZ SE	+8.12%	109B
CHUBB LIMITED	+8.58%	99.62B
MARSH & MCLENNAN COMPANIES	+6.47%	99.18B
HARTFORD FINANCIAL SERVICES GROUP (THE), INC.	+20.63%	28.82B
TALANX AG	+5.18%	18.9B
BB SEGURIDADE PARTICIPAÇÕES S.A.	-2.97%	12.27B
ASR NEDERLAND N.V.	+6.02%	10.23B
ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED	+18.99%	10.08B
ASSURANT, INC.	+1.42%	8.9B

Other Multiline Insurance & Brokers

Powszechny Zaklad Ubezpiecze? Spólka Akcyjna

Equities

PZU

PLPZU0000011

Multiline Insurance & Brokers

Powszechny Zaklad Ubezpieczen : Condensed interim consolidated financial statements for Q1 2020

EPS Revisions