Sheela Foam Ltd

NSE:SFL

Good afternoon, ladies and gentlemen, welcome to our conference where we are going to report our performance in the third quarter 2024. The speakers today will be Artur Olech, President of Management Board of PZU SA; Jaroslaw Mastalerz, President of Management Board of PZU SA; and Tomasz Kulik Board member of both companies.

Good afternoon, ladies and gentlemen. I would like to welcome you to our quarterly conference and presentation of our group's financial results. So in the beginning, I would like to propose the following formula for today's meeting. I suggest we focus on our results only or mostly, I'm sure you will have questions about the past. But we have 1.5 weeks before we announced our strategy and at that meeting, we would like to address your questions regarding the past. Of course, it's not that we are trying to avoid answering any of your questions, but I do believe that for the sake of more order, it would be useful for us to focus on the results today because there is only so much information we can present today.

So of course, you are all welcome to come on December 2, I do hope you have already received invitations and our company will have a meeting for the market for different stakeholders and for the employees as well. So all this lies ahead.

And today, I would like to focus on the results. Before I do that, however, I would like to address the following issue. For the last 6 months, we've been working very hard on our strategy as well as many challenges faced by our group. These were some issues connected to the current situation and the fact that many new people have joined our company over the last 6 months. There were several challenges regarding our operational model, the structure of our assets, the role of banks in our group.

The question about where they should be positioned in our structure. These were some of the challenges. Another challenge was connected to the motor insurance market, a challenge we had to address immediately. It had to do with inflation level, pricing level and other challenges, which I will discuss later in more detail. In the meantime, there were some huge events that were independent. Thus, for example, the weather-related challenges, which strongly affected agricultural insurance and third quarter was also strongly marked by the challenges posed by the flooding in Poland, I will address this issue in more detail later.

So the results I would like to present to you. Revenues reaching almost PLN 22 billion in insurance. This is almost PLN 1.9 billion more than last year. So this is very -- growth is better than decent. In health insurance growth by 11%, very important part of insurance for us. It's not motor insurance, where we had a growth of more than 15% and almost 9% growth in motor insurance. The main challenge here is profitability and our operational efficiency. Profitability PLN 3.7 billion aROE almost 7% -- 17% after 3 quarters. Results of quarter 3, despite all these unpredictable events, which I will comment in just a moment amount to almost PLN 693 million and PLN 1.215 billion in the growth of the dominant company.

I think it's positive news because we are above market consensus despite the fact that it's considerably lower than last year, but last year was a record year. It was a year without any severe unexpected events and many factors have contributed to this development. But let's address what's here and now talking about the future as well. So a very strong capital position, which I'll also discuss in a moment, and unshaken by the catastrophic events, extreme weather events in recent 2 quarters. Dividends, as you know all about dividends are not going to spend much time on this. Subject of the top line and the revenue, we've already discussed too. So the next driver of development was non-motor insurance, corporate insurance, also property insurance, especially apartments, 90% growth in the health pillar, very positive, a bit of news as well and very soon I will tell you a little bit more about life insurance, where we have also reported very solid results, very positive results.

Jaroslaw Mastalerz will tell you about the predicted development. Also increasing assets of external clients and TFI and PTE growth of almost 26%. A very important contributor to our results were banks. Banks have already reported on the results also about market consensus, bank assets almost PLN 494 billion. So a very strong contributor to our result. PZU SA and Alior both are above -- on the market consensus or the plan which positively affects our quarterly results.

Now as regards -- the reasons to the main decreases year-on-year. So just take a look at the weather events. In quarter 2, agricultural insurance strongly affected and flat in quarter 3. And we can divide it by half really 50-50, both affected this year's result 50%.

Now when you look at the results of Q3, you will see some one-off events that have connected to some past decisions. So write-off for investment on [ Olefins ] PLN 100 million. I will comment on that in more detail a little bit later. So these are some factors that caused by some external situations.

Now looking at our core activities, core business operationally, this will be mostly flat. And in terms of technical issues insurance, the main contributor is motor insurance, which I will discuss in more detail. Operating margin, more than 24 -- almost 24%. Combined ratio -- so this deterioration is directly connected to the previously mentioned 3 elements. So the flat agricultural insurance and motor insurance.

And I think it will require some more explanation, but in a moment. And the very important issue, our capital position and the solvency ratio 233% higher than market average. So we are way above our peers, but safe and well-built informed investment portfolio with 62% represented by several bonds and effective reinsurance. Effective reinsurance was significant as well because today, it affects our results despite the figures connected with the flood, which I will give you in more detail in a moment. The influence was significant, but not overly. So it did not significantly affect our stability or result. One of the first decisions we made in midyear without even knowing the flood will come, we changed our reinsurance program. In terms of high exposure to catastrophic risks, we increased our security level. We have very fine share of insurance in order to be prepared for large events. The first information we received about this event was alarming. It was said it may strongly affect our result. It turned out not to be true in the end, but of course, for the people directly affected, it was a tragic event, no about it. Now a few words about the flood operationally and what we did at 3 dimensions: the financial dimension, probably the most interesting one for you right now but it's also an issue of our company's agility, which we were able to show in a critical moment. Third quarter conclusions or what conclusions we have for the future because there are some specific conclusions and it will affect the way we view the market and also insurance of catastrophic events, et cetera.

So we are very outright to responded very quickly in general, our state reacted very quickly. We were informed very quickly and very accurately. We had information about the amount of water. So the information was much better than what you remember from the 90s. The first signal were really dramatic and we received the first signals several days before the floods started. It will just between 12 and 13 of September and already done, we established crisis teams. We had electrical material. We are prepared and the expectation was that we'll be affected in billions. So what would we do before the flood started, we sent warning information -- warnings to all our clients, informing them how they can contact us if they have any claims in order to reduce level of confusion in the future because we are afraid of the operational risk if people don't know which number to call, et cetera.

So when the critical flooding came after 2 or 3 days, we were there on site with our mobile field claim handling centers and we started paying the first prepayment on the 15th, 16th or 17th. So once the flood wave has passed a town, we are prepared to handle claims. We also decided to change the approach to claim handling and moving away from the traditional process when you send documents way to expert opinion and it takes dozen days or longer. So we actually authorized our employees to pay for the claim also in its entirety very, very soon. And the highest payment reach level of PLN 500,000 overnight. It was a nonstandard approach compared to the classical approach.

Of course, you wait for the water levels to drop then you estimate the losses, et cetera. But we are really concerned that if we keep the traditional approach, we will have to repeat the work twice. And the effect we reached this decision was very positive, which surprised us. So we already paid out PLN 400 million in claim assessment. Therefore, the maximum amount that we might need to pay out is PLN 275 million. And the information that you have in the table on the left-hand side is very important because we are dealing with a cohort of claims that amounts to about 48,000 cases. This number might grow up to 50,000 because there are some delays. Currently, we are 1.5 months after the flood. So relatively still little time happened from the natural disaster. And within this 1.5 months, we have already managed to successfully handle 46,000 claims. This means that we have already made payments for those claims. And this is actually unheard of. So what happened? The following happened. We have full access to all the information that we need. We managed the situation operationally very well. And one more thing happened. In the world of insurance, you constantly receive all kinds of complaints and in non-life insurance, they account roughly for 7% to 8% of all claims that we receive complaints for this amount of claims in a regular situation. And we expected that the number of complaints would go up because there is a flood, misunderstandings, et cetera.

And we have barely 1% of complaints for all the claims handled in connection with the flood. So this means that the customer satisfaction went drastically up. Our Net Promoter Score went up by a few percent over those 2 months. And also the ground awareness of PZU went up by a significant number of percent not only in the areas that were affected by the flood but all over the country. We take it very seriously because exactly these numbers and those facts show that we are agile, that we are reliable and that we have a good brand, and we are able to manage a natural disaster situation.

I think that this will translate into an increased number of people insured in Poland because you might be aware that the ratio of people insured to GDP stood at 2% and we cannot increase this ratio. We haven't been able to increase this ratio. And what is impossible that is that this is going to go up. Let us compare our situation with what happened in Spain. There was a response of the entire ecosystem. There was a response at the governmental level, at the local level, and we also want to learn from their experience. I believe that we should increase the awareness among our nationals that there is -- that it really makes sense to buy out an insurance policy against adverse natural phenomena.

So these kind of shocks can always be used to draw lessons from them. And hopefully, this is what we'll be able to do in Poland. We got very deeply involved as our company into raising awareness and encouraging people to purchase insurances. And I believe that we are in a good place to do so. We can also talk with the regulators about it, namely. We can use the natural disaster as a good argument to encourage people to basically get insured because this also increases the resilience of the society and the role of an insurance company in this kind of campaign is tantamount. And of course, we also want to get involved in building infrastructure that can protect us against floods. This is very important as well. But there are no such infrastructure out there that can give 100% protection against natural disasters. So we need to work with the local governments as well. We should discourage people from building property in areas that are prone to flooding and thirdly, to encourage citizens to get insured against such events. I decided to talk at length about this case study because I thought that it might be interesting for you. And now I'd like to focus on our results in details.

And I will hand over to Tomasz and then Jaroslaw, who will give you the results of individual business lines.

Ladies and gentlemen, you are well aware that during this part, we show PZU's performance against market. So in the third quarter, we had a stable trend in non-life insurance that we can report a major increase, like we did in the first and the second quarter. Also, non-motor insurance was growing and actually, the dynamics there determines how the dynamics in other segments develops. And now what happened in the third quarter? The gross written premium increased by almost 10%. In non-motor insurance, we had an increase by 14%. And in particular, we were benefiting from the corporate insurance. And the increase we had mainly in insurance against fire and other property damage as well as liability insurance and assistance.

The growth in the motor insurance sales can be explained by an increase in average premiums. The growth of the value of an average loss. So in TPL, we performed more or less like at the market level, and I will tell you more about it and further. In MOD, the increase was 7% year-on-year and this was connected with a growing number of risks. For over the last few quarters, we've been selling more or less the similar amount of MOD and the TPL policies. This is the market trend, and we are benefiting from it. And another factor that explains the increase in our revenue are increased prices. So I believe that this specific product will continue to be profitable.

Moving on, I will hand over to Jaroslaw.

Thank you, Tomasz. I will start with the group and individual continued insurance. The 3% growth doesn't seem spectacular. But I would like to remind you that we have a very high market share. So each percent of growth means that we keep our market share and that we are effectively performing better than our competitors without increasing even though the price is going up. We have noted major growth in individual insurance, 31%, and we hope that this trend is to stay.

In the individual insurance segments is that segment in which we have launched a pilot project on business units and we hope that this will translate into quicker response rate and greater agility and efficiency. Actually, this is where this is headed. So we believe that the team in individual insurance will be able to even quicker response to market needs and to keep the growth at a stable level. And still, I believe that we can perform better in those segments.

Now health care -- health insurance. The revenue went up by nearly 19%, and the number of insured went up only by 2.5%. So here, this is the clear -- the increase in revenue is a clear effect of increased prices. So we managed to convince our customers to pay a higher premium -- to pay higher premiums and the inflation of health care costs that was contributing to the profitability of those products. Well, I said that it was accepted by the market. So we believe that this specific product will continue to be profitable. Probably, we will not significantly change the strategy. We might change our approach to how we manage the health care pillar.

We want to keep our current market share growth rate and profitability because this is a product that is very price sensitive and it's strongly affected by inflation because of the cost of health care services go up. Well, the premium also has to go up, gross written premium raised by PZU through cooperation with the banks went up by 61% year-on-year. In particular, we worked with PKO Bank and with Alior Bank. Assurbanking segment, well, this is the segment that never lives up to its expectations, not only in PZU but also globally. Thanks to close cooperation the banks that are in our group of one of the clients is in the revenue of PLN 2.4 billion. This is actually not the revenue, but this is the total customers loan and deposit, acquired by the assets that are managed by our group.

They registered an impressive growth over 30% compared to the last year. We have significant increase in the investment funds that we manage and a slightly smaller increase in the pension funds, but -- and this is often the case. And we did not have a lot of room for maneuver in that regard. We managed to win 9% of the market share. And with our investment fund management company, this is the best result of a fund that is not managed by bank. And I think this is it. I can hand over back to Tomasz.

So I will give you a brief overview of our standing after the third quarter. I would like to once again stress that we had good results as far as sales and revenue go. We managed to achieve it by effectively reaching out to our customers, both this year and at the end of the previous year. We have carried out a number of acquisitions that allowed us to reap benefits from them in individual segments of insurance. So we should analyze this data in the context over the last 12 months. So in our gross insurance revenue went by 8.6% year-on-year. In particular, the non-life insurance, the growth was at 9.6%. Corporate Insurance there, we had a double-digit, almost 13% growth. In life insurance, we also had a major growth about 7.5% in particular, in the individual insurance segments.

Non-life insurance, 5.6% growth. Internationally, this was affected by the Ukrainian market because this is a difficult market, especially for life insurance. Higher reinsurance, higher percentage of assignment. So reinsurance, which allows us to optimally manage profitability and it worked very well, especially in Q3. And for this reason in terms of net revenues after the assignment of the premium to reinsurer, the dynamics are slightly slower year-on-year, it's almost 8%. The cost expenses et cetera and service expenses so this quarter has been mostly affected by flooding PLN 275 million in net revenues and affect the performance in Q3. We've been observing increased claim ratios as regards TPL Motor and 2 bits of information here. The first one positive. We are profitable in TPL for corporate again. And for this reason, in the third quarter, we can already benefit from profitability with a combined ratio below 99%. In terms of mass insurance clients, TPL a onetime event, led to an increase in our reserves because for calculation, we used the live duration charge from 2023 which show that in our post-COVID reality, we live longer. So probably, it flows connected through different rate benefits will stay in our portfolio for a longer time. So -- and maybe a high increase of PLN 40 million translates into a combined ratio of 3% growth in the mass insurance. In terms of administrative costs and acquisition expenses, so administrative remained at the same level.

Cost of acquisition slightly lower. So in combination of these 2 components affects the result to a smaller extent than last year. So we have higher margins on PZU side. In terms of administrative expenses, the increase has been caused by inflation, labor costs and different contracts that are tied to minimum wage. And the minimum wage increase year-on-year amounted in total to more than 9%, which further translates into the increases I've just mentioned. The appreciation of the loss component and recognition of the loss component, these 2 lines when viewed in net perspective on a comparable level as last year. To calculate this component, we look at certain events that tend to repeat. So this component is not based on the one-off events such as this year's flooding. That's why we see the decrease of this component compared to Q2.

Looking at financial costs and our results of our investment activities allocated to insurance segment and also a little bit of surplus, we end this quarter with the result of a dominant company in nonbank segment to the amount of PLN 626 million after adjustment for sort of contribution of the bank sector, we closed this quarter with a number of PLN 1.250 billion and the result is allocated to PZU aside. Despite a decrease year-to-year for obvious reasons, this result is higher than market consensus and higher than the result of Q2. So we can say that in the quarter that was marked by huge challenges, we've been able to enter in a positive note.

Cost ratios in relation to revenue, lower high margin in life insurance and for obvious reasons, deterioration of the margin in non-life insurance. Going further and looking on individual segments. Let's begin with mass insurance segment. We see an increase in revenue 8.6% to product lines. MOD in double-digit growth, 11.1% growth both the price saturation ratios, but to MOD to TPL translated to the growth we've been seeing for several quarters now on the non-motor side, also a considerable increase by 10.2%.

So this is the part of our business which in normal quarter -- a quarter not affected by large catastrophic events such as the flood contributes to high returns. On the expenses side, net insurance service expenses have 3 main issues. So the influence of the flooding, influence of increasing the reserves and cost of business mainly connected to inflation which affects labor costs and which translates into a reduction in operating result and affects the combined ratio, which reaches more than 100%.

Now from what we've been seeing on the motor insurance market, the growth continue on the TPL side. After the growth we've seen in first 6 months in Q3, we report 8% on TPL, slight adjustment on MOD beside, which ends quarter 3 at a level of 3%. Good news because the rate and the frequency of accidents is dropping, but it is still at a higher level than it used to be -- it was before COVID. Also good news, we've seen dropping dynamics in the growth of average claim value. And assuming that the pricing trend will be maintained, we will be able to close the profitability gap we've been struggling with.

Let me add something on this subject because maybe there will be questions about that. Sometimes it's important to say something immediately without asking for questions. Looking for motor insurance, of course, you know the contributors as what's happening in different areas before and the PZU SA. We mentioned the challengers. So we've taken steps in order to reorganize Link4 in the field of -- to improve the profitability. And claim handling, we've already seen the first positive results looking at the contribution of Link4. The loss is smaller than it used to be, but it's still a heavy burden on the good performance.

As regards to PZU itself, we've also made some changes in the pricing in Q2 and 3. PZU SA has relatively high premiums compared to the market levels. So what we are doing today. So we are making some adjustments in individual segments. And TPL, I think it was a price increase of 80% in that Q4, despite the fact that we're starting from a different baseline we've been able to apply higher premium, higher by 8% year-to-year bearing in mind that we start from a different baseline. But in order to see a positive improvement in the trends, we still need some time because that's the nature of these premiums, so that we earn what we did today, will contribute to the performance of Q4 next year.

So what we see today is the result of the previous pricing and claims values from previous quarters. Secondly, we're working very hard to improve operational excellence in claim handling. A lot still remains to be done. Also, we want to improve efficiencies. I'm really hoping for some improvements connected to the new management and you are old because Tomasz Tarkowski was the head of claim handling in PZU SA for many years already. I'm sure you will see positive results of the new/old management. And -- but Tomasz also likely said that the behavior of the market is -- has influence as well. But as for market development, we've seen positive trends. In the TPL, probably we haven't yet reached a level that many of pricing that many would expect. But it's not only about pricing. What's also relevant is a number of other actions on our side. Looking at efficiency, average claim value that we've seen some positive signals already still a lot remains to be done. We do hope for continuation of the positive trend in Q4. I hope in Q4, it will become more visible, especially in expenses for pricing and price adjustments here the effects will be seen in the next year. That's the nature of the business.

What's important, however, and I think it's a very important advantage we have compared to our peers. We are not a monoliner. We are a company that's very strong in different areas. So the result we can improve by taking steps in different areas of our other activity, but profitability in motor insurance is one of our priorities. That's why we're reorganizing the operational model in order to further manage this area. So mass insurance, mass motor insurance, mass non-life insurance will be a separate area managed by separate people who will decide about the product, the pricing, administration service, et cetera, and they will also be accountable for the technical performance.

Jaroslaw mentioned the units that have already been introduced and operate at one of the trial to business units will be mass insurance tried non-life segment with strong leadership and strong support in terms of competence and full accountability or responsibility for building profitability.

Thank you very much. Moving on, I would like to talk to you about the Corporate Insurance segment. Here, we've seen double-digit dynamics at 12.6% this time. But what's even more important after the difficult third quarter in which we witnessed some really difficult to mass scale events. But we had this quarter on a positive note in the Corporate Insurance segment in motor insurance. And in non-motor insurance segment, we have reported strong profitability, and that's the most important news. If you measure the combined ratio, it reaches a level of 88% to 87%. So in all dimensions, we can say that the profitability has been positive in Q3. Of course, we have been consistent in building scale in -- especially in non-motor insurance.

Now as regards to group insurance and individually continued insurance the President has already talked about it a little bit, but I would like to add a few things to explain what's behind the very high margins. We see in the operating result and the margin at level of 26%. So this is mainly due to dynamic growth in revenue due to higher premiums for higher expected benefits in the health care sector, so that's one contributor. Also administrative expenses and premiums for covering these costs in group insurance also plays a role. This data shows that we can continuously improve in this area. And I also -- what contributes to the insurance was the -- sorry, to the revenue was -- were premiums related to acquisition expenses. What generated the main costs in insurance services were only administration costs as well as growing health care costs.

Now I'd like to talk about the changes that we have noticed in the current quarter compares to the pandemic. So we came back in a way to 2019. We no longer have profit that we reported during the last few quarters. In August and September, we're at the stable level. And then just recently, we have realized a shift in this trend, which translated into the claims ratio in that segment that are individual and group continued insurance. So the claims ratio went up by 50 basis points compared to last year.

Now individual protection insurance and life insurance, the dynamics is similar. We've noted a growth of the contract margin. And the contract margin increased because the insurance portfolio that is a part of our cooperation with the bank went up so the amortization went up by 30% year-on-year. And then also the level of premium went up to cover the expected level of expenses and claims. And on the side of the expenses, we have noticed a positive influence of the portfolio on the loss, especially in the old age benefit insurance in the life insurance. So these are very good news, both on the revenue and the expenses side.

And as a result, this segment contributed well to the consolidated result. Now CSM and the evolution of the margin. We may compare it year-on-year or quarter-to-quarter. Whether you approach year-on-year or quarter-on-quarter comparison, you'll notice that we continue to build the value because we see some potential for further growth. We are aware that in group insurance, that the portfolio of group insurance is very mature. And in that portfolio, we'll try to keep the value high and the area that we want to -- in which we would like to build value and benefit from it in the future are individual protection insurance.

The asset portfolio in this quarter, yield 19% growth adjusted for investment products. When we adjust the growth for investment projects, we would get at 9% year-on-year result is at 8.8%. Unfortunately, there is also some bad news. And Mr. Olech talked -- has already talked about it. Our valuation is lower because lifetime impairment was recognized on one of our assets. Therefore, it has a lower contribution to the valuation of our portfolio and our debt instruments -- capital instruments portfolio. Last year, we benefited from dividends from the portfolio of listed shares and they also had an influence on us this year.

Then we also had swaps and foreign currency portfolio. There was an instrument of current -- there was an influence of currency fluctuation on our portfolio, especially as far as valuation of collaterals go, for instance, real property. The currency exchange rates were fluctuating in this quarter. That's why it had a major effect on us compared to last year in this quarter.

Now the solvency ratio. The third quarter was encumbered with one-off events. Still in the solvency ratio, we did have increases connected with operating flows, investment results and dividends from banks and other entities. At the same time, the scale of our activity, especially in non-life insurance became very capital intensive.

Now a few words about our ongoing strategy. We're on the right track. All the graphs testify to that. We are implementing our strategy. And this is the very last quarter in which we continue to do so. I'd like to remind you that we announced our strategy in times that characterized by a lot of instability and insecurity. So I'm very glad that today, just a quarter away from closing it, we have thus far delivered very good result and the adjusted return on equity is at nearly 16%.

And I will hand over to Mr. Olech.

Ladies and gentlemen, before we open the Q&A session, I would like to address one topic. I have been at the helm of the company for the last 6 months. This was a turbulent period. Also, we had many changes in the level of the Management Board. This was a time of analyzing what we were doing in the past and how can we use that as a point of reference for planning our future. In 1.5 weeks, we are going to unveil our new strategy. So that's why I would like to briefly talk about the future. On the request of our shareholders, we have carried out a professional opening audit. We carried out this audit in a very highly professional manner. We have invited renowned auditing companies to carry out this control, not 1 but 2 companies.

They publish a comprehensive report. And actually, the purpose of the audit is not to praise anybody, but to show what works so-so and what doesn't work at all. So the areas that were identified as problematic or not working at all were later, carefully analyzed by us. We try to answer the question whether the cause for it was the bad business decisions or difficult operating environment, et cetera. So in order to defend the interest of shareholders, we notified relevant bodies about the audit findings. So in total, we sent 6 notifications of that kind. I wanted to share this with you because I believe this is important and all the economic events that were subject to audit our present in the books.

So what we analyzed were procedural -- whether the procedures were observed and whether the procedures -- if there was any breach of procedures and also a number of challenges were identified and also our shareholders were aware of it. The challenges were linked, among others, to the capital group and also the management structure. So we decided to address those issues. And actually, the way we address them will be presented in 1.5 weeks during the presentation of our strategy, namely, what steps we wanted to take with regards to our core assets. This is one thing. But also, we have taken immediate action in those areas that had to be improved regardless of our strategy.

One of them is our organizational structure. So that's why we decided to introduce business units. We have already started and will continue to divide our organization into business units. We'll also have support functions that will not be part of business units. They would relate, for instance, the claims handling, et cetera. So we want to have groups of employees that deal with customer relations that deal with other areas. We want to fully empower them and give them a lot of room for maneuver so that they can do their work as good as possible. And I've already said that certain things have already happened and we're gradually approaching the implementation of the target model.

We also invited a lot of managers from the market to join our management positions. Actually, PZU is currently a very attractive employee -- employer. We had a few spectacular comebacks and also a number of new faces. I'm mentioning this because this is important. Our management structure is still undergoing transformation, but it is able, even in such a moment respond effectively. And that's why I'm mentioning this in the context of the flood. In total,1,000 employees were involved in handling claims related to the flood in our organization and I think that this brings a good picture of our company.

Moreover, 3 years ago, you were presented with our strategy. Now we are at the end of implementing it. And the figures show that we managed to implement that strategy in all the areas and not only numbers justified to that. Most of the employees of the company who are still with us have been involved in that process. And that even though over the last few years we had a lot of challenges such as the pandemic, war, inflation, adverse weather events. Despite all those circumstances, we have managed to deliver our strategy. And I think that this is a very good sign. And especially in the context of the fact that we can have -- we will present our strategy for the next years.

So what I would like to share with you is the message that we are aware of our strengths. We are aware of our limitations, and we plan well. And realistically, now I would like to once again invite you to the meeting in 1.5 weeks.

So now if you have any questions, we are here for you. You can ask any questions about the performance or otherwise.

So are there any questions here in the room?

Kamil Stolarski, Santander. I have several questions. I'll try to be brief. So PLN 275 million in connection with the flood. I have 2 questions. So is it the legit amount? Or do I understand correctly? And also, you said that PZU has improved its reinsurance program. And I think there was one comment that such events will repeat. So what will be the effect of the improvement if an identical flood happens next year? Will the cost for PZU be lower than? And how has the reinsurance program being changed?

So yes, it corresponds with the legitimate proportion level. Of course, there can be some modifications in the future, our exposure. Well, the answer to your question depends on the size of the possible flood. So the program is built the following way. So there is the legitimate level. There is the assignment of risk to reinsurance and then cofinancing above certain levels. So what we've done, we've increased the first layer, so to improve our resistance -- resilience for even such as the flooding. So we are quite secure with the scale comparable. We've increased our level of security.

However, if we see a flood at similar scale in the same place last year, we would be talking about losses of billions, not millions. And for this, we are quite well prepared. Of course, it's also an issue of cost optimization, et cetera. So the lessons we've learned from the flood is essential. We see that the infrastructure today is better different than it used to be, but it is still not sufficient in order to protect ourselves from future flooding. Some infrastructures built well, for example, Racibórz . But the infrastructure in the Klodzko region was inefficient.

So we need infrastructural improvements on example of Austrians or the Czechs. They've built phenomenal anti-flood infrastructure compared to Germans who didn't. In Poland, we feel we have a role to play here. There will be government programs. Of course, infrastructure will be built by the government, that's obvious. So as a result, our risk exposure level can be adjusted. But in general, we have to realize that infrastructure will not be able to protect us in 100%. So we will be working on many levels, for example, with local government looking at their level of infrastructure insurance. And thirdly, all the discussions about anti-catastrophe insurance. This is something we don't have yet. We are active on the first, second level, but not on the third level yet.

So we cannot assume that nothing will change in the next year. I'm sure there will be changes development if -- but if next year, a similar flooding should happen with no other factors changed, we will be prepared. Of course, unless the scale is really catastrophic. But with the adjustments we have made, we've increased our level of security about 270,000 [indiscernible] to billions.

Two more questions. I would like to go back the non-motor and also motor mass insurance segment. So are we waiting for this unprofitable portfolios sold in the past to dispute, to end or -- and is the profitability satisfactory in the segment or far from it?

We are lucky because the motor insurance sector in Poland keeps growing. And we don't have any long-term unprofitable contracts. Of course, the effect of the changes we introduced will be seen in some time, but that's one thing. The second thing is the optimizations in claim handling and unrelated expenses. The time of claim handling also. I'm not going to go into detail, but we believe that an improvement in claim handling expenses will be visible very soon because we can take step quite easily and fast with this regard. Of course, we are not waiting until some current contract and no now. I mean, of course, the claims we handle now are based on contracts we sold in the past.

The only thing we can do there is optimization of our efficiency profession. But the second thing -- we've seen it in the case of flood, the faster we pay out the less we have to pay. So being very efficient and reaching the client fast helps us because we don't have to -- if we pay out fast, we don't have to make sure that they receive a replacement vehicle, for example, before. So I'm sure that you will see positive effect of improved efficiency and optimizations very soon. You also have to remember that motor insurance must be viewed not only from the perspective of core business, but also cash flow effect. It has always been like that.

So if high ratios, an insurance company sometimes insurance companies are more aggressive in the pricing policies in order to somehow compensate for higher core business costs and investment. I come from the old tradition, which said that you have the reserves motor insurance to rise the level of premiums times 2, but sometimes the margins have changed. Sometimes it's 5x as high or even more because all people are looking at is the right cash flow and the possibility to invest. But the market will probably learn better because it settled due to such decisions. But right now, nobody plans to be above 100% of the core long term because the market has changed. Indeed, it's not what it used to be 30 years ago.

But when you look at the possibility to raise prices, looking at our competitors who don't report in according to IFRS, but this all Polish regulations, they see it in total. So they don't look at the core of motor insurance, but also investment results and the reserves that are available in motor insurance, and they view it as a total. So the reduction of rates will also affect their decisions. They will have to rationalize their pricing policies so the core will improve. I mean improvement in the claims handling process will positively affect the core. The time of high interest rates is over, and I'm sure the market realizes it. And I think improving efficiency will be a universal practice.

It will be followed by some price adjustments, I believe. And we've seen this improvement in speed of reaching the customer in order to handle claims. And then the customers might be prepared to pay more because until this day, the prices for motor insurance remain among the lowest in Europe despite the fact that we drive the same cars as the rest of Europe, et cetera. But the market is very competitive as it is. So in order and we have to show the customers added value we can offer because we can reach them faster than others and other efficiencies and I'm sure we will be able to monetize it.

So another question, so it's a strategy, but also part maybe in general, so maybe I misunderstood. But the way I understood your words is that there was something else that the current group structure is inefficient?

No, no, no. That's not what I'm trying to say. We are trying to close bracket in the sense that we have started. We wanted to carry out some audits. I mentioned this opening and some information in the media. In this way, we are closing the bracket. And that's one thing. And the other thing I was trying to say were some challenges we've seen in the last 6 months, and we are closing them now. So some challenges were connected to the change of management. So in this way, it is now close, we are closing it. In the meantime, so the operating model our group structure and what we did in last 2 quarters were mostly 2 things. So we've already introduced several business units and units and tribes and this process will be completed in the next few weeks. And we've provided the strategy.

And it's very clear about the structure of our group, including banks, their position and our assets. So that's what I was trying to say. Thank you. I understand. That was my point. The other thing you mentioned was not subject to an audit.

Are there any other questions in the room?

We've received some questions online and 2 are about the flood. So can the flood still affect performance in Q4?

No, I don't think so. Well, in terms of net values, no, of course, we will be paying out compensation, but it's a quick process. I think we can say we've changed the paradigm a little bit from this normal standard traditional model to an emergency or extraordinary model, and it has reported very good results because customer satisfaction has improved, which is not obvious for such a lot of catastrophic events where things happened all the same time.

Another question from autonomous. You've addressed this question. From autonomous. So the changes about the reinsurance program you've discussed already, but it's a national question, when will these changes come into force?

Well, the reinsurance program changed midyear. So it's already in place. If the flood had been greater and more intense, we would have benefited from the changes already. Somewhere in the midyear, we've increased our level of security the first layer. So luckily, we did not have to use it because the flood turned out not to be as dramatic as it might have been. Of course, it was very tragic and fear in consequences and many people were affected. But in terms of our results, it costs us more or less as much as agricultural insurance and in agriculture, we haven't seen a catastrophe, there were just some weather events.

But in terms of the impact on our result, it was comparable. It was 230, I think, for agricultural and Q2 and the flood 275 in Q3.

There are several questions about motor. So can you help share with us your outlook on pricing in 2025 for TPL? And will it offset the inflation in claims values?

Well, this time, we are not assuming that changes in prices will resemble those we saw in the previous cycle. Let me just remind you that after significant losses in 2016 and '15, reaching almost PLN 1 billion every year, then the market recovered with pricing growth dynamics at the level of 30%, 40% in 2 consecutive years. We are not assuming that this time the situation will be as dynamic. We assume that the market will adjust prices. And next year, we will achieve a positive result. However, it will not be characterized by huge leaps in margins in contrast to what we saw in the previous cycle.

And there is one more difference between what we observed in the past and what we're seeing today. I'm aware that many onlookers thought that our response was not as quick as they would like it to be. Still, I can tell you that the banking sector and the insurance sector responded very quickly and we did not have PLN 1 billion losses on 1 product, for instance. So we have changed the prices in our MOD and TPL, this was a part of our response. And if we take a look at the results both quarterly and year-to-date and we'll see that quarterly, the entire market of TPL insurance was at minus 2.6%. So this was nothing dramatic. They can be adjusted quarter.

We're taking measures that Mr. Olech was talking about, for instance, responsible price increases and lowering expenses. So lowering the cost of the procedure and the related costs that allow us to close the profitability gap. I am positive that the prices will reflect the market circumstances and that the market will continue to behave rationally. And as a result, the final customer will receive tangible added value in the loss adjustment and claim handling process. And of course, I cannot share right now any specific numbers or percentages with you. What is certain is that we need to build profitability with dropping interest rates and well. Yes, the market will need to adjust.

When the market rates go down, any change on the market might be?

I mean when the -- going down of interest rates is going to be postponed, then the market's response is going to be postponed as well. Basically, we do respond to the market situation, and we do have a classic business model that is present.

So in the mass segment, the core products went to up to 95% this year. Was this in any way affected by the weather? It went from 95% in third quarter 2023, 118%, 2024. And when do you expect an improvement given the price increases you're implementing? The question is specifically about TPL.

So the weather conditions do not affect TPL. Of course, we might argue that in difficult weather, drivers have to be more concentrated and that weather might affect the accident ratio and should be taken into account when analyzing the level of premiums in TPL because there is a correlation between short-term weather variance. Yes, there is a correlation between this and the accident ratio. All other issues related to flooding. Well, flood does not affect TPL. It affects MOD and the after effects of the flood are already reflected in our results. And therefore, I consider in terms of affecting results in this case to be closed, and it will have no influence on our results in Q4 and in 2025.

We did notice some fluctuations among customers who are price-sensitive. And these are customers that are in our portfolio and the Link4, our competitor portfolio. Mr. Olech already alluded to this situation. And we are taking steps to optimize our operations, but we will talk about it more during the unveiling of our strategy on the 2nd of December.

How did the annuity provisions affect TPL in the third quarter and was it a one-off effect?

This was a one-off effect that an increase by 3 percentage points in the core mass segment, PLN 308 million in third quarter.

Now a question from HSBC. PZU has been growing faster than the competition and then on the motor line. Is this sustainable? That's the first part of the question. And the second part of the question is, is there a risk that the competition can get aggressive in non-motor insurance segment, too?

We expect that will be managed to keep our competitive advantage in the sales. It's easier for us to reach out to certain segments of the -- there are certain groups of clients. We also have quite a unique distribution model that makes us stand out against the competition. We are the only one who have TUW. This allows us to reach individual clients and generate high income. It's a mutual insurance funds TUW. So this gives us a competitive advantage over the rest of the market. And regarding the macro factors such as the EU funds or lot of investments that are supposed to take place in Poland. Well, we believe that these factors will translate into an increased demand for insurance services.

In particular, in the corporate segment which is going to be beneficiary of infrastructure projects connected with, for instance, energy transition. So we want to participate in those projects as an insurer, as an investor because we do have a number of assets and our balance also has its capacity.

A question about dividends. Is your dividend policy under review currently? Is it going to be a part of the strategic plan?

Yes. We will talk about our plans concerning dividends in our presentation in December. You may have noticed that the level of reinsurance secures us not only against the flood, but also yet reinsurance allows -- gives us a certain cash flow to be able to regularly pay dividends. We met with many of you and with numerous shareholders when we were preparing our strategy. We are well aware of the importance of the dividend. It concerns not only PZU, but also other companies that are listed on European markets. I believe that the strategy that you are about to present will show how we intend to keep a satisfactory dividend policy.

And the final question from PKO BP Securities. What was the scale of the mismatch for swap points and appraisal report in the third quarter 2024?

Honestly, I don't remember this well the mismatch year-on-year as far as swap points go, we're at -- it was a several dozen millions for sure, less than PLN 50 million. When it comes to valuation of third quarter, as you know, was not exposed to any changes in valuations. Valuations are actually reviewed in every second and fourth quarter. We use appraisal reports to do so. And then if there are any changes are -- then they are reflected in our books. So we only checked those indicators that we can compare to the previous year.

There are no further questions. So thank you and we invite you back on the second of December.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]