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    PZU   PLPZU0000011

POWSZECHNY ZAKLAD UBEZPIECZEN SA

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

05/29/2020 | 01:51am EST

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.

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)

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.

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)

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.

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)

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

7

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

  1. 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.

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)

  • 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.

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)

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

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

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)

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

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

11

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

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)

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

13

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

14

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

15

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

16

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

17

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).

18

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 services https://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.

21

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

60

PZU Corporate Member Limited

London

28.09.2017

100.00%

100.00%

Investment activity.

(UK)

Consulting and training services, development of technology innovation

61

PZU LAB SA

Warsaw

13.09.2011

100.00%

100.00%

to support technical and procedural security processes and risk

management.

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

62

Omicron BIS SA

Warsaw

28.08.2014

100.00%

100.00%

No business conducted.

63

LLC SOS Services Ukraine

Kiev (Ukraine)

01.07.2005

100.00%

100.00%

Assistance services.

64

PZU CASH SA

Warsaw

15.09.2017

100.00%

100.00%

Other monetary intermediation

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

65

Tulare Investments sp. z o.o.

Warsaw

15.09.2017

100.00%

100.00%

No business conducted.

Consolidated companies - Armatura Group

Production and sale of radiators and sanitary fittings and administration

66

Armatura Kraków SA

Krakow

07.10.1999

100.00%

100.00%

and management of the group.

https://www.kfa.pl/

67

Aquaform SA

Środa Wlkp.

15.01.2015

100.00%

100.00%

Production and sale of bathroom accessories and fittings.

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

68

Aquaform Badprodukte GmbH in Liquidation

Anhausen

15.01.2015

100.00%

100.00%

Wholesale trade.

(Germany)

69

Aquaform Ukraine ТОW

Zhytomyr

15.01.2015

100.00%

100.00%

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

(Ukraine)

70

Aquaform Romania SRL

Prejmer

15.01.2015

100.00%

100.00%

Wholesale trade.

(Romania)

Consolidated companies - mutual funds

71

PZU SFIO Universum

Warsaw

15.12.2009

n/a

n/a

Investment of funds collected from fund members.

72

PZU FIZ Dynamiczny in liquidation

Warsaw

27.01.2010

n/a

n/a

as above

73

PZU FIZ Sektora Nieruchomości 4)

Warsaw

01.07.2008

n/a

n/a

as above

74

PZU FIZ Sektora Nieruchomości 2 4)

Warsaw

21.11.2011

n/a

n/a

as above

75

PZU FIZ Aktywów Niepublicznych BIS 1

Warsaw

12.12.2012

n/a

n/a

as above

76

PZU FIZ Aktywów Niepublicznych BIS 2

Warsaw

19.11.2012

n/a

n/a

as above

22

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

77

PZU FIO Globalny Obligacji Korporacyjnych

Warsaw

30.05.2016

n/a

n/a

as above

78

PZU FIZ Akcji Combo

Warsaw

09.03.2017

n/a

n/a

as above

79

inPZU Inwestycji Ostrożnych

Warsaw

10.04.2018

n/a

n/a

as above

80

inPZU Obligacje Polskie

Warsaw

10.04.2018

n/a

n/a

as above

81

inPZU Akcje Polskie

Warsaw

10.05.2018

n/a

n/a

as above

82

inPZU Akcji Rynków Rozwiniętych

Warsaw

10.05.2018

n/a

n/a

as above

83

inPZU Obligacji Rynków Rozwiniętych

Warsaw

10.05.2018

n/a

n/a

as above

84

inPZU Obligacji Rynków Wschodzących

Warsaw

10.05.2018

n/a

n/a

as above

85

inPZU Goldman Sachs ActiveBeta Akcje Rynków

Warsaw

28.10.2019

n/a

n/a

as above

Wschodzących

86

inPZU Goldman Sachs ActiveBeta Akcje

Warsaw

28.10.2019

n/a

n/a

as above

Amerykańskich Dużych Spółek

87

inPZU Akcje CEE plus

Warsaw

28.10.2019

n/a

n/a

as above

Associates

  1. GSU Pomoc Górniczy Klub Ubezpieczonych SA
  2. CPF Management 5)
  3. PayPo sp. z o.o. 6)
  4. 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.

  1. PZU directly holds a 33.5% equity stake in Pekao Financial Services sp. z o.o. while Pekao holds 66.5%.
  2. On 1 March 2019 the company's liquidation process was opened.
  3. Additional information is presented in item 1.3.1.
  4. 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.
  5. 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.
  6. 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.

23

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%

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

24

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

25

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

  1. 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.

26

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

27

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%

  1. 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.

28

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.

29

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.

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)

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.

31

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.

32

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

33

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.

34

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.

35

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.

36

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.

37

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

39

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

40

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

41

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

  1. 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)

42

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.

43

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

  1. Includes goodwill on acquisition of PIM.
  2. Includes goodwill on acquisition of the LD branch in Estonia.
  3. 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

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 516 million. The impairment loss was recognized in the profit and loss account.

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.

44

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

45

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

46

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

47

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

  1. 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.
  2. 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

48

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

  1. 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.

49

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