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

Annual Report 2023

Management Board's report on the activity of the PZU Group and PZU SA for the accounting year ended 31 December 2023

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Best practices in PZU and PZU	Best practices in subsidiaries
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About PZU Group	Business model	External	Strategy and perspective	Risks and opportunities	Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
environment	and dividend

Table of Contents

To go to the required page, click on the corresponding item in the index.

Letter from the CEO to Shareholders	8
Letter from the Chairman of the Supervisory Board	10
1. About the PZU Group	23
1.1. Group characteristics	24
1.1.1. Products and services	24
1.1.2. Brand	26
1.1.3. Mission, vision, values	27
1.1.4. Milestones of PZU Group's growth	29
1.1.5. PZU Group's structure	30
1.2. Selected awards and distinctions	32
2. Business model	34
2.1. Capital and value creation	35
2.2. Value chain	43
2.3. Suppliers (upstream)	45
2.4. Operating activities	48
2.4.1. Insurance	48
2.4.2. Health care	53
2.4.3. Investments	54
2.4.4. Banking	56
2.4.5. Other areas	58
2.5. Sales and distribution	60
2.5.1. Insurance products	60
2.5.2. Health products	64
2.5.3. Investment products	65
2.5.4. Banking products	66
2.6. Clients (downstream)	68

2.7. Dialog with stakeholders	69
3. External environment	78
3.1. The most important economic trends in Poland and abroad	79
3.1.1. Situation in the world economy	79
3.1.2. Trends in the Polish economy	79
3.1.3. External environment in the Baltic States and Ukraine	81
3.2. Polish and Baltic States insurance sector compared to Europe	83
3.2.1. Description of the insurance markets on which PZU Group companies operate	84
3.3. Polish health care sector compared to Europe	89
3.3.1. The health care market in Poland	90
3.4. Polish banking sector compared to Europe	91
3.4.1. Situation on the banking market in Poland	93
3.5. Financial markets in Poland and around the world	94
3.5.1. Global and local equity and bond markets	94
3.5.2. Polish investment and pension fund market	96
3.5.3. Main factors affecting PZU share prices	97
3.5.4. Bank Pekao and Alior Bank share prices	100
3.6. Regulations pertaining to the insurance market and the financial markets in Poland	101
3.7. Factors that may affect PZU Group's operations and results in 2024 and in the medium term	104
3.7.1. Macroeconomic and geopolitical factors	104
3.7.2. Legal and regulatory factors	105
3.7.3. Market factors specific to the sectors in which the PZU Group operates	107
4. Strategy and perspective	110
4.1. Strategic ambitions by 2024	111
4.2. Implementation of the strategy in 2023	115
4.3. ESG ambitions for 2030-2050	126
4.4. Strategic Perspective	128
5. Risks and opportunities	130
5.1. PZU Group's risk profile	131

Annual Report 2023	Management Board's report on the activity of the PZU Group and PZU SA	4	INSURANCE | HEALTH | INVESTMENTS | BANKING
for the accounting year ended 31 December 2023

About PZU Group	Business model	External	Strategy and perspective	Risks and opportunities	Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
environment	and dividend

5.2. Risk management	140
5.3. Risk sensitivity	143
5.4. ESG risks	146
5.4.1. Key ESG risks	146
5.4.2. ESG risk management - policies	147
5.5. ESG opportunities	149
6. Performance and dividend	152
6.1. Key factors affecting the financial
results achieved	153
6.2. PZU Group's income and costs	156
6.3. PZU Group's asset and liability structure	159
6.4. Contribution made by the market segments to the consolidated result	161
6.5. PZU's standalone results	169
6.6. Dividend	172
6.6.1. Capital and Dividend Policy	172
6.6.2. Disbursement of dividends	172
6.6.3. KNF's stance on the dividend policy in 2024	173
6.7. Financial rating	175
6.8. Analysts' predictions	178
7. Corporate governace (G)	180
Statement on the application of corporate governance rules	181
7.1. Financial conglomerate	182
7.1.1. Approach to managment	182
7.1.2. Corporate governance over subsidiaries	182
7.2. PZU's collection of corporate governace rules	184
7.3. Application of corporate governance rules	185
7.3.1. Application of corporate governance rules contained in Best Practices of WSE-Listed Companies	185
7.3.2. Application of Corporate Governance Rules for Regulated Institutions	190
7.3.3. Best Practices of the PZU Group	196
7.4. Information policy and communications with investors	198
7.4.1. Shareholders and the issuer's securities	198
7.4.2. Investor Relations	201
Annual Report 2023 for the accounting year ended 31 December 2023
Management Board's report on the activity of the PZU Group and PZU SA

7.5. Management Board and Supervisory Board	205
7.5.1. Management Board	205
7.5.2. Supervisory Board	218
7.5.3. Diversity policy	232

7.6. Internal systems and functions	235
7.6.1. Risk management system	235
7.6.2. Internal control system	236
7.6.3. Financial statements control system	238
7.6.4. Audit firm auditing the financial statements	238

7.7. Shareholder Meeting and relations with shareholders	240
7.7.1. Shareholder Meeting	240
7.7.2. Rules for changing the Articles of Association	242
7.7.3. Dividend	243

7.8. Conflict of interest and transactions with related parties	244
7.8.1. Management of a conflict of interest	244
7.8.2. Transfer Pricing Documentation	245
7.9. Remunerations	246
7.9.1. Policy of compensation of supervisory and
management bodies	246
Corporate culture and key business conduct policies	250
7.10. Corporate Culture	251
7.10.1. Values and Ethics in Business	251
7.10.2. Preventing Mobbing and Discrimination	252
7.10.4. Prevention and Detection of Corruptionand Bribery	254
7.10.5. Payment Practices	257
7.10.6. Tax policy	257
7.10.7. Investment Policy - TFI and PTE PZU	259
7.11. Minimum safeguards	261
7.12. Security System	265
7.12.1. Information security	265
7.12.2. Preventing crime	269
7.12.3. Preventing Money Laundering and Terrorism Financing	270
7.12.4. Business Continuity Management	272
7.12.5. Application of International Sanctions	272
5	INSURANCE	| HEALTH | INVESTMENTS | BANKING

About PZU Group	Business model	External	Strategy and perspective	Risks and opportunities	Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
environment	and dividend

8. Environment (E)	274
8.1. Business of the PZU Group in the face of climate change	275
8.1.1. Global Challenges to Sustainable Development	275
8.1.2. Analysis of climate change and risk identification	277
8.1.3. ESG Strategy - approach to management in climate	280
8.1.4. Product offering - prevention and adaptation	280
8.2. Taxonomy - disclosure under Article 8 of Regulation (EU) 2020/8525	289
8.2.1. Insurance and reinsurance activities	289
8.2.2. Investment activity	294
8.3. PZU Group's climate impact	313
8.3.1. Direct environmental impact	313
8.3.2. Consumption of raw materials	314
8.3.3. Energy consumption	318
8.3.4. Carbon footprint	322
9. Society (S)	327
9.1. Employees	328
9.1.1. Employees - approach to management	328
9.1.2. Employment structure	329
9.1.3. Work environment	336
9.1.4. Organizational culture	338
9.1.5. Respect for human rights and diversity in relations with employees	341
9.1.6. Engagement surveys, dialog and trade unions	345
9.1.7. Remuneration and benefits	347
9.1.8. Training and development	349
9.1.9. Knowledge and experience sharing	353
9.1.10. Safety	354
9.2. Clients	357
9.2.1. Respect for human rights in relations with clients	358
9.2.2. Responsible sales	358
9.2.3. Claims handling	362
9.2.4. Customer dialog and improvement process	368
9.2.5. Client satisfaction surveys	370
9.2.6. Customer - preventing exclusion	374

9.3. Communities	377
9.3.1. Communities - approach to management	377
9.3.2. Local communities	379
9.3.3. Prevention	383
9.3.4. Cultural patronage	385
9.3.5. Charity	386
10. Other information	388
10.1. Reporting process	389
10.2. Materiality assessment	391
10.3. GRI content index	392
10.4. ESRS content index	396
10.5. Taking into consideration the guidelines pertaining to disclosure of climate information	399
10.6. Verification Statement - Greenhouse Gas Emissions	400
10.7. SFDR disclosure	401
11. Other statements	407
12. Appendices	410
12.1. PZU Group's financial data	411
12.2. Glossary of terms	426
12.3. Alternative Performance Measures	429

Annual Report 2023	Management Board's report on the activity of the PZU Group and PZU SA	6	INSURANCE | HEALTH | INVESTMENTS | BANKING
for the accounting year ended 31 December 2023

About PZU Group

Business model

Integrated table of contents

External	Strategy and perspective	Risks and opportunities	Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
environment	and dividend

BUSINESS MODEL

/34

Others	CAPITALS:
/388	Financial	/35

IndexGRI	Intellectual	/37
/390
Human	/40

Materiality Assessment
Social and relational	/40
/389
	Infrastructural	/41
Taksonomy
	Natural	/41
/287
	Annual Report 2023 for the accounting year ended 31 December 2023
		Management Board's report on the activity of the PZU Group and PZU SA

strategy and perspective /110

inwestments

/54

risks and opportunities

/130

insurance

/48

health

/53

PZU GROUP /23

7

performance

/152

banking

/56

policy

/147

Stakeholders /69

	Climate
E and environment/274
S	•	Employees	/328
	•	Clients	/357
	•	Communities	/377
G	Statement
	on corporate
	governance	/181

INSURANCE | HEALTH | INVESTMENTS | BANKING

About PZU Group	Business model	External	Strategy and perspective	Risks and opportunities	Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
environment	and dividend

Anita Elżanowska

Member of the PZU Supervisory Board delegated to temporarily perform the function of the PZU CEO

Letter from the CEO to Shareholders

[GRI 2-22]

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

Sales and profitability

Despite operating in a very challenging geopolitical and macroeconomic environment, the PZU Group achieved its strategic goals in 2023. Net profit attributable to shareholders of the Group's Parent Company, PZU SA, amounted to nearly PLN 5.8 billion, growing year-on-year by more than 50%. It also exceeded the 2024 strategy

target by 34%. The adjusted return on equity (aROE) was 22%, up 5.7 p.p. compared to 2022. The PZU Group also strongly increased sales. In 2023, gross insurance revenues amounted to PLN 26.9 billion, more than 2 billion higher than the previous year. The main driver of growth was non-life insurance, where revenues rose 11.4% year-on-year to PLN 16.1 billion. This was driven primarily by revenue growth in non-motor insurance and the MOD segment. Sales growth was accompanied by high profitability achieved in key business lines. The Combined Ratio (COR) for non-life insurance in Poland was 85.3% and the operating margin in group and individually continued life insurance was 21.9%.

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

Investment performance and contribution of banks

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

The performance on banking operations was another positive factor. The contribution of Pekao and Alior

banks to the PZU Group's profit attributable to the equity holders of the Parent Company was more than three times higher than in 2022, amounting to nearly PLN 2 billion (vs. PLN 580 million a year earlier).

Implementation of IFRS17 standard

An important development for the PZU Group in 2023 was changing the accounting standard, from IFRS4 to IFRS17. For external stakeholders, this was mainly visible in the structure and content of the reporting documents. Internally, however, the implementation of IFRS17 has meant many changes in analytical and planning areas. These changes coincided with dynamic changes in the macroeconomic environment, particularly in relation to inflation and the response of central banks. As

a consequence of these events, it was necessary to revise the PZU Group's strategy and set new or update some of the existing metrics.

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

Sustainable development

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

Annual Report 2023	Management Board's report on the activity of the PZU Group and PZU SA	8	INSURANCE | HEALTH | INVESTMENTS | BANKING
for the accounting year ended 31 December 2023

About PZU Group	Business model	External	Strategy and perspective	Risks and opportunities
environment

Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
and dividend

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

Safe development

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

The PZU Group retains great potential for growth and further value creation. Given the scale of its operations and its position as a leader in the financial sector in Poland, crucial to its stability, all activities it undertakes must be carried out with a safe risk margin. We will do

our utmost to ensure that the PZU Group continues to enjoy a high level of trust from shareholders, clients and other stakeholders, as well as to provide them with certain benefits that are above standard in the market.

Best regards,

/-/ Anita Elżanowska - Member of the PZU Supervisory Board delegated to temporarily perform the function of the PZU CEO

Annual Report 2023	Management Board's report on the activity of the PZU Group and PZU SA	9	INSURANCE | HEALTH | INVESTMENTS | BANKING
for the accounting year ended 31 December 2023

About PZU Group	Business model	External	Strategy and perspective	Risks and opportunities	Performance	Corporate governance (G)	Environment (E)	Society (S)	Other information
environment	and dividend

Marcin Kubicza

Chairman of the PZU Supervisory Board

Letter from the Chairman of the Supervisory Board

Dear Sir/Madam,

PZU Group's operations in 2023 were characterized by stability and resilience. Effective risk management and a secure investment portfolio structure have contributed to maintaining a strong capital position, as expressed by the Solvency II ratio at a level significantly above 200%. This was confirmed when the rating agency S&P Global Ratings maintained its ratings for PZU and PZU Życie at a consistent, high level of A- with a stable outlook. The PZU Group's strong financial position has allowed it to meet its capital policy for disbursement of dividends in 2023. Under the decision of the Shareholder Meeting, more than PLN 2 billion has been allocated for this purpose. In 2023, the PZU Group achieved very solid financial results, closing 2023 with a net profit of nearly PLN 5.8 billion, which implies a very good outlook, both for further stability and strengthening the potential for dividend payments.

Business development

In 2023, gross insurance revenue rose to PLN 26.9 billion, mainly due to an increase in sales of non-life

insurance. The development of key strategic areas has also significantly strengthened the scale and scope of activities in the areas of health and investment services. PZU Zdrowie's revenues rose 25.9% year-on-year to PLN

1.6 billion, and the number of active health contracts in the Group exceeded 3.4 million. The network of PZU Zdrowie's medical facilities was consistently expanded. Last year saw the launch of multispecialty medical centers in Gdynia and Kraków, the commissioning of new imaging diagnostic labs in Gdańsk, Białystok, Poznań, Toruń and Kraków, and the acquisition of the Medical

Center in Gorzów Wielkopolski.

In the investment pillar, the level of external client assets managed by TFI PZU and OFE PZU increased by PLN 13.9 billion to PLN 54.8 billion at the end of 2023. As part of developing the offering, two more funds were launched that are part of the sustainable investment trend. The first one focuses on shares of companies whose activities contribute to the UN Sustainable Development Goals (SDGs), including tackling climate change and its negative effects. The second one focuses primarily on bonds issued to finance projects pursuing environmental or social goals. Both funds are compliant with Article 8 of the SFDR Regulation, meaning that they promote environmental and social aspects through their investment policies.

Digitization

Inflationary pressures continued to be the main challenge in maintaining high operational efficiency. Therefore, the implementation of digital solutions continued in 2023, and in the long term, they will contribute to maintaining client loyalty by making it easier to serve clients, as well as to reduce costs. These

innovative solutions are based on advanced analytics, the use of big data and robotics. In 2023, nearly 1500 ideas and start-ups were analyzed in the Group and in the end 9 pilots were launched. They included solutions to support actuarial processes, claims and benefits handling processes, the corporate sales area, as well as processes to improve the visibility of PZU's sales network in digital channels.

Climate challenges

The financial sector, including the insurance industry, plays an important role in the energy transition, the biggest challenge for the Polish economy in the coming years and decades. The PZU Group is aware of its responsibility in this area. In 2023, it has increased its commitment to investments supporting the transition to nearly PLN 2.65 billion, including PLN 417 million for financing onshore wind farms. The target annual production of turbines, to the construction of which the Group has committed, should provide green electricity for over 800,000 households in Poland.

As the dynamics of climate change increase, so do regulatory requirements in the process and reporting areas. As of 2025, the PZU Group will be subject to

a regime under the CSRD Directive; this regime raises the profile for activities such as the climate neutrality strategy, decarbonization strategy, design of pro-climate products and services, and implementation of processes based on a circular economy. In practice, this means aligning product portfolios, offerings and resources with the opportunities presented by the sustainability agenda. In the PZU Group, these processes will require the mobilization of more and more resources, and will also intensify involvement at all levels of management and

Annual Report 2023	Management Board's report on the activity of the PZU Group and PZU SA	10	INSURANCE | HEALTH | INVESTMENTS | BANKING
for the accounting year ended 31 December 2023