Powszechny Zaklad Ubezpiecze? Spólka Akcyjna : Management Boards report on the activity of the PZU Group (Q2 2022)

2022 Management Board's report on the activity of the PZU Group in H1 2022

3.6 Other areas

PZU Group Strategy in 2021-2024

4.1 PZU Group Strategy in 2021-2024

4.2 Opportunities and challenges 2021+

4.3 Strategic objectives

4.4 Strategy operationalization

4.5 Metrics

Financial results

5.1 Key factors affecting the financial results achieved

5.2 PZU Group's income

5.3 PZU Group's claims paid and technical provisions

5.4 PZU Group's acquisition and administrative expenses

5.5 Drivers and atypical events affecting the results

5.6 PZU Group's asset and liability structure

5.7 Contribution made by the market segments to the consolidated result

Risk management

6.1 Objective of risk management

6.2 Risk management system

6.3 Risk appetite

Table of Contents

	CEO Letter to Shareholders	6
01	PZU Group	19
	1.1 Potential	20
	1.2 Brand	20
	1.3 Mission	22
	1.4 Value creation	23
	1.5 Milestones in PZU Group's history	28
02	External environment	31
	2.1 Main trends in the Polish economy	32
	2.2 External environment in the Baltic States and Ukraine	33
	2.3 Situation on financial markets	35
	2.4 Factors that may affect the conditions of operations and the PZU Group's activities in H2 2022	36
03	Business	45
	3.1 Business model	46
	3.2 Insurance	47
	3.2.1 Description of the insurance markets on which PZU Group companies operate	47
	3.2.2 Activity and product offering of the PZU Group's insurance companies	52
	3.2.3 Factors, including threats and risks, that may affect the operations of the insurance area in H2 2022	58
	3.3 Medical care	60
	3.3.1 Situation on the health market	60
	3.3.2 Activity and product offering	61
	3.3.3 Factors, including threats, that may affect the operations of the health area in H2 2022	65
	3.4 Investments	66
	3.4.1 Mutual funds and pension funds markets	66
	3.4.2 Activity and product offering	67

MANAGEMENT BOARD'S REPORT ON THE ACTIVITY	2
OF THE PZU GROUP IN H1 2022

04

05

06

3.4.3 Factors, including threats and risks, which may affect the operations of mutual funds, Employee
Capital Schemes and pension funds in H2 2022	69
3.5 Banking	70
3.5.1 Situation on the banking market in Poland	70
3.5.2 Activity and product offering	71

3.5.3 Factors, including threats and risks, that may affect the operations of the banking area in H2 2022 74 74

79

80

80

81

86

93

97

98

100

103

103

104

104

106

119

120

120

122

3

Table of Contents

	6.4 Risk management process	123
	6.5 PZU Group's risk profile	124
	6.6 Reinsurance operations	134
	6.7 Capital management	135
07	PZU on the capital and debt markets	139
	7.1 PZU's share price	140
	7.2 Banking sector	143
	7.3 Debt financing	144
	7.4 Distribution of PZU's 2021 profit	145
	7.5 Rating	146
08	Corporate governance	151
	8.1 Audit firm auditing the financial statements	152
	8.2 PZU's share capital and shareholders	152

09

10

Other

Attachment: Glossary and Alternative Performance Measures

157

160

Don't print if you don't need to.

MANAGEMENT BOARD'S REPORT ON THE ACTIVITY	4	5
OF THE PZU GROUP IN H1 2022

CEO Letter to Shareholders

Beata Kozłowska-Chyła, Ph.D. Hab.

President of the PZU Management Board

Dear Shareholders,

Together with the management boards of the companies forming the PZU Group, I hereby convey to you our H1 2022 report.

During the period under discussion there was a persistently heightened level of uncertainty on the financial markets due to the emergence of new challenges to economic stability.

Since 24 February of this year, namely, from the outset of Russia's aggression against Ukraine, we have been operating in unprecedented conditions against the backdrop of the most recent decades. The effects of the pandemic that continue to exert a global and domestic influence have been multiplied by the repercussions of the largest armed conflict since World War II. Above all, one should enumerate the sharp growth in the prices of energy carriers and food on the global markets

MANAGEMENT BOARD'S REPORT ON THE ACTIVITY	6
OF THE PZU GROUP IN H1 2022

and the more profound supply chain difficulties. This has contributed to a clear acceleration in the pace of inflationary growth which has directly translated into economic slowdown across all of the significant markets around the world.

The PZU Group's operations focused on implementing the adaptative processes that were launched based on the strategy adopted for the period from 2021 to 2024. Our extensive capital stability coupled with broad diversification of our lines of business have enabled us to maintain sound financial results even in these exceptional and challenging times. The PZU Group's net profit attributed to the equity holders of the parent company during the first half of 2022 was PLN 1.48 billion in comparison with the PLN 1.63 billion in H1 2021. This was largely related to non-recurring events, especially having in mind the necessity of adapting the level of provisioning in the insurance and banking segments. Despite that, the return on

equity (ROE) generated in the first half of the year of 18.5% is a very robust result when compared with the European insurance industry. Once again, we have delivered a result that surpasses our strategic ambitions (17.4%).

Stable dividend policy

The effectiveness and resilience of our business model in which the various business segments make it possible to balance the consolidated results poise us to maintain high dividend payments. In 2022 the PZU Group will disburse 1.7 bn PLN

in dividends at 1.94 PLN per share. At present, that implies a dividend yield of 6.5%. In that manner PZU's cumulative dividend per share from the date of the IPO in 2010 will be

31.5 PLN. As it strives to deliver on its capital and dividend policy the PZU Group maintains a strong capital position, as evidenced by its high Solvency II solvency ratio - 207%. The A- rating with a stable outlook awarded by the S&P rating agency is one of the highest in the Polish financial sector and testifies to the Group's sound condition.

Growth segments

In H1 of this year the PZU Group increased the gross written premium to PLN 12.6 billion, or 2.5% compared to the corresponding period of the previous year. Above all, this was the result of the sales of non-life insurance in Poland rising by 6.9% year on year (in Q2 alone sales climbed 7.7% y/y), while maintaining a robust level of profitability - in H1 2022 the combined operating ratio was 88.8%. We posted the largest growth in the non-motor insurance segment, especially in corporate insurance (growth of +18.5% y/y). The growth in the motor insurance segment should also be emphasized despite the persistently unfavorable situation on the market for compulsory motor TPL purchased by the operators of motor vehicles. This is largely the result of the strong growth in the gross written premium on motor own damage insurance, not just on account of the renewals of policies and premium growth but also due to new sales underpinned by the expansion of products and services as part of the driver's ecosystem.

During the reporting period we once again experienced dynamic growth in the demand for private medical services. The health pillar's revenue in H1 2022 climbed 15.6% year on year to PLN 652 million. We grew the revenue generated by medical centers and through the sales of health insurance and subscriptions. This was possible thanks to maintaining the stream of investments in the product and infrastructural areas. Among other things, we expanded our individual subscription

offers to include new options - partner, parent and family packages and new prevention packages. In addition, through Alior Bank we have given customers access to payments in the e-Installments system, we have rolled out medical bundles and related banking services for Bank Pekao's customers. At the same time, we are constantly expanding the network of PZU Zdrowie's proprietary medical centers (in Q2 of this year we opened new centers in Łódź and Gdańsk) and partner centers.

The result on investing activity has grown considerably at the PZU Group level. The growth of 14.4% y/y posted in H1 2022 is largely the effect of the increase in the interest income of the Group's banks Pekao and Alior driven by the series of interest rate hikes. Our investment policy has prepared the PZU Group well for any possible market turbulence. The portfolio's safe composition mainly consisting of debt instruments provides for a stable level of income. The high interest rate environment will exert a positive impact on the portfolio's profitability as maturing bonds can be renewed at higher yields.

The strengthening of TFI PZU's market position merits attention. Even though the overall market saw net outflows of PLN 20 billion in H1 2022, TFI PZU was the sole fund management company to report positive net sales in every month in this period. It continues to be the leader in this respect (net sales was PLN 340 million). TFI PZU's net asset value of PPK at the end of Q2 of this year stood at PLN 1.8 billion, signifying growth of 100% during the year.

Consistent strategy execution

Notwithstanding external circumstances the PZU Group has maintained the full capacity to develop its business and pursue its strategic ambitions. In the second quarter of this year, we continued to develop the various integrated ecosystems. We rolled out even more exceptional products and services on the market. They include comprehensive insurance dedicated to housing associations and cooperatives, extending the Cash portal offering forming an element of the benefits ecosystem and adding mortgage loans, construction and mortgage loans and personal accounts in Bank Pekao. We also ran intensive aftersales activities bearing fruit in

the form of robust results, among others, in the mass non- motor insurance segments (residential and tourist insurance campaign with the participation of Iga Świątek, the world's best tennis player) and motor insurance (comprehensive motor TPL+MOD+ADD+assistance).

7