Powszechny Zaklad Ubezpiecze? Spólka Akcyjna : Management Board report on the activity of the PZU Group and PZU SA

2021 Management Board's report on the activity of the PZU Group and PZU SA

for the accounting year ended 31 December 2021

Table of Contents

	CEO Letter to Shareholders		6
	Chairman of the Supervisory Board Statement	10
01	PZU Group			21
	1.1 Potential			22
	1.2 Brand			22
	1.3 Mission			24
	1.4 Value creation			25
	1.5 Milestones in PZU Group's history			30
	1.6 Awards and distinctions			32
02	External environment			35
	2.1 Main trends in the Polish economy			36
	2.2 External environment in the Baltic States and Ukraine		37
	2.3 Situation on the financial markets			40
	2.4 Polish and Baltic States insurance sector compared to Europe		42
	2.5 Polish banking sector compared to Europe			44
	2.6 Regulations pertaining to the insurance market and the financial markets in Poland	47
	2.7 Factors that may affect the conditions of operations and the PZU Group's activities in 2022	48
03	Business			57
	3.1 Business model			58
	3.2 Insurance			59
	3.2.1 Description of the insurance markets on which PZU Group companies operate	59
	3.2.2 Activity and product offering of PZU Group's insurance companies		66
	3.2.3 Distribution and customer service			73
	3.2.4 Factors, including threats and risks, that may affect the insurance business in 2022	82
	3.3 Medical care			83
MANAGEMENT BOARD'S REPORT ON THE ACTIVITY	2
	OF THE PZU GROUP AND PZU SA 2021
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3.3.1 Situation on the health market	83
3.3.2 Activity and product offering	84
3.3.3 Distribution and customer service	91
3.3.4 Factors, including threats and risks, that may affect the operations of the health area in 2022	92
3.4 Investments	93
3.4.1 Mutual funds and pension funds markets	93
3.4.2 Activity and product offering	94
3.4.3 Distribution and customer service	95

3.4.4 Factors, including threats and risks, which may affect the operations of mutual funds, Employee

Capital Schemes and pension funds in 2022	97
3.5 Banking	97
3.5.1 Situation on the banking market in Poland	97
3.5.2 Activity and product offering	98
3.5.3 Distribution and customer service	103
3.5.4 Factors, including threats and risks, that may affect the operations of the banking area in 2022	105
3.6 Other areas	105

Strategy in 2021-2024	111
4.1 PZU Group Strategy in 2021-2024 - #PZU Potential and Growth	112
4.2 Opportunities and challenges 2021+	112
4.3 Strategic objectives	113
4.4 Strategy operationalization	118
4.5 Major achievements in pursuing the strategy in 2021	123
4.6 Metrics	126

Financial results	129
5.1 Key factors affecting the financial results achieved	130
5.2 PZU Group's income	134

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Table of Contents

	5.3 PZU Group's claims paid and technical provisions	136
	5.4 PZU Group's acquisition and administrative expenses	137
	5.5 Drivers and atypical events affecting the results	137
	5.6 PZU Group's asset and liability structure	137
	5.7 Contribution made by the market segments to the consolidated result	139
	5.8 PZU's standalone results	151
06	Risk management	157
	6.1 Objective of risk management	158
	6.2 Risk management system	158
	6.3 Risk appetite	160
	6.4 Risk management process	162
	6.5 PZU Group's risk profile	163
	6.6 Risk vulnerability	173
	6.7 Reinsurance operations	175
	6.8 Capital management	176
07	The PZU Group on the capital and debt markets	179
	7.1 Equity and bond market	180
	7.2 PZU's share price	183
	7.3 Banking sector on the Warsaw Stock Exchange	188
	7.4 PZU's investor relations	190
	7.5 Analysts' recommendations regarding PZU's shares	195
	7.6 PZU Group's Capital and Dividend Policy	197
	7.7 Debt financing of PZU, Bank Pekao and Alior Bank	201
	7.8 Rating	202
	7.9 Calendar of PZU's major corporate events in 2022	206

MANAGEMENT BOARD'S REPORT ON THE ACTIVITY	4
OF THE PZU GROUP AND PZU SA 2021

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08	Corporate governance	209
	8.1 Application of corporate governance rules	210
	8.2 Financial statements control system	215
	8.3 Audit firm auditing the financial statements	219
	8.4 PZU's share capital and shareholders	220
	8.5 Rules for amending PZU's Articles of Association	223
	8.6 Shareholder Meeting and shareholder rights	223
	8.7 Supervisory Board and Management Board	225
	8.8 Compensation paid to members of supervisory and management bodies	256
	8.9 Diversity policy	260
09	Other	263
10	Appendix: PZU Group's financial data	267
11	Attachment: Glossary and Alternative Performance
	Measures	282

In pursuance of the Accounting Act requirements, the Company hereby presents a separate statement of non- financial information related to PZU Group and PZU SA. The statement was prepared in conformity with the international reporting standards of the Global Reporting Initiative (GRI Standards). Pursuant to Art. 49b.9 of the Accounting Act, the statement of nonfinancial information is available on the Company's website at: https://www.pzu.pl/en/investor-relations/reports

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CEO Letter to Shareholders

Beata Kozłowska-Chyła

President of the PZU Management Board

Dear Shareholders,

On behalf of the PZU Group, I hereby convey to you our activity report for 2021.

In the last reporting period, we functioned in highly volatile surroundings. The subsequent waves of the COVID-19 pandemic, the clear recovery in the activity of commercial undertakings and consumers, rising inflation and the suitable shift in monetary policy in the latter half of last year and the economic repercussions of the mounting geopolitical crisis in the last quarter were among the factors contributing to that. In the face of uncertainty shaped by a number of new risk factors, the PZU Group once again demonstrated its capacity to grow its business constantly and steadfastly on all of its critical markets and generate above-average benefits for its shareholders while simultaneously providing clients with an attractive and modern offer and the best service.

MANAGEMENT BOARD'S REPORT ON THE ACTIVITY	6
OF THE PZU GROUP AND PZU SA 2021

Record-breaking gross written premium and earnings

In 2021 the PZU Group grew its gross written premium by PLN

1.2 billion year on year to the record-breaking watermark of PLN 25.1 billion. This means that it has the leading position in the entire Central and Eastern European (CEE) region. From the time PZU went public on the Warsaw Stock Exchange in 2010, annual sales of insurance have risen by more than PLN 10 billion, which proves that having the largest market share and holding a dominant position in many market segments do not pose an obstacle for PZU to continue its growth, which it achieves responsibly and sustainably.

We also delivered the highest net profit in 12 years, namely from the time when PZU first appeared on the Warsaw Stock Exchange. The profit attributable to holders of the parent company shot up in 2021 by 74.5% year on year to PLN 3.34 billion, implying an ROE of 18.6%, i.e. 1.2 p.p. above its strategic

ambitions and 7.7 p.p. above last year's level. We generated excellent profitability in insurance activity - the combined operating ratio was at a low robust level of 89.2% and in investment activity - the return in the main portfolio was 5.4% whereby it exceeded the risk-free rate by 4.8 p.p. The rising contribution of banking activity to the net result supported the good results generated on insurance and investment activity. It stood at PLN 604 million versus a loss of PLN 1.2 billion in 2020. This was possible thanks to the improvement in the prospects for lending activity and the positive outcomes of building synergy between the PZU Group's insurance and banking pillars.

The generated results form a good prognostic for maintaining the payout of dividends. In 2021 PZU's shareholders received more than PLN 3 billion in dividends, the highest amount paid by any of the companies listed on the Warsaw Stock Exchange. The total rate of return on PZU shares was 20.1%, i.e. more than 3 p.p. above WIG20 TR, the main income index. With the caveat that future payouts hinge on the development of circumstances in the economy and the regulator's recommendations, we can declare that we are poised to stick to our commitment given to the market in terms of the level of availability of capital and safety expressed by the Solvency II ratio being above 200%.

Efficient strategy execution

At the end of March 2021, we presented the new PZU Group Strategy in 2021-2024 called Potential and Growth. We have already effectively implemented many of the actions announced in that document in a short period of time thanks to the engagement of the management boards, all of our departments, employees at every level in the organization and the sales networks and partners cooperating with us.

Our strategic ambition is to turn the PZU Group into a supplier of overall solutions that will help our clients protect and grow their wealth, properly take care of their health and financial security and of their loved ones, align our business smoothly to operate in a sustainable fashion taking into account

ESG factors and cultivate engaged and effective business relations with employees. In 2021 we intensively expanded our product and service ecosystems to achieve that vision. Among other things we launched the PZU Benefits platform, PZU Sport subscriptions for sports and recreational activity, we introduced a new flexible offer of individual life insurance based on the open group model, subscription and prepaid medical and preventive packages in PZU Zdrowie for individual

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clients, we expanded the inPZU offer to include new index funds, we rolled out the innovative Risk PRO program for clients in the industrial sector and the comprehensive vehicle fleet management system under the name iFleet. We made subscription payments available to clients for many non-life insurance products. PZU set new market standards with many of these newly-implemented solutions.

By pursuing our ESG strategy to turn the PZU Group into a leader, promotor and guide to others in the climate and energy transition process: we invested major funds to underwrite the construction and expansion of wind farms, we also created exceptional insurance products earmarked for individual and corporate owners of installations generating renewable energy.

The preparation of an offer and the large growth in the sales of insurance in bancassurance and through external partnerships deserve emphasis. We would like to utilize to the fullest extent possible the competitive edge afforded to the PZU Group by the diversity of its member companies, their business segments and business profiles. We are developing synergies in the PZU Group with great consistency and visible effects, especially in bancassurance and assurbanking in collaboration with Bank Pekao and Alior Bank.

We invariably strive to maintain our position as one of the leaders in the technological revolution in the financial industry, which is fostered by having the appropriate corporate culture and structured procedures for sourcing, testing and implementing innovative ideas from inside the organization and from the marketplace. We are also successively enhancing the level of digitalization in our offer, sales channels and service channels. The number of users of our flagship self-service platform called myPZU has surpassed 2.5 million clients.

Poised to face new challenges

The decisions and actions taken in 2021 enabled us to respond effectively to the noticeable growth in insurance awareness among Poles and consequently the higher demand for insurance. Despite these challenging circumstances, we developed our business in all of its most important areas, and in the case of some products and services, we entered market segments that were new to PZU.

This means that the PZU Group is emerging from the pandemic- related turbulence in good shape and will enter 2022 with potential enabling it to face new challenges effectively, such as

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