Powszechny Zaklad Ubezpieczen SA

WSE:PZU

Earnings Call Transcript 2021-Q1

[Tomasz Kulik, executive]

[Interpreted] Good afternoon, ladies and gentlemen. I'm very pleased to be able to welcome you to the summary of the results of the PZU Group for Q1 '21. As in the previous quarter, this meeting is being held solely with the utilization of remote means of communication. And as was the case in previous quarters, we'll walk through the main accomplishments of the group in the first quarter of this year. We'll say a few words about what's happened in various lines of business, then we'll sum up everything by looking at the financial results and we'll look at the operating segments results.

So we'll begin with the first quarter from the helicopter view, we've got -- we have a very strong start of the year, good beginning period. We've been able to keep our promises, not only with respect to delivering a high level of profitability, but also in terms of our dividend-related promises. What we would like to emphasize here is that we have a very high profit of PLN 897 million, much higher than in the previous -- corresponding period of the previous year. Even if we were to remove the nonrecurring events linked to the impairment losses of bank assets as a result of that impairment was being taken, the profit has grown in a very impressive way, more than 42% year-on-year.

What's also worthwhile to emphasize is just as we've said to you, when we spoke about the strategy, we would like to continue and we want to be seen as a dividend company. And that's why we have a very high proposed dividend of PLN 3.5 per share proposed by the management team, endorsed by the Supervisory Board, which gives a dividend yield of 10%. So I hope that our shareholders will be very pleased. Of course, while at the same time, maintaining a high capital position, a lot of safety with the solvency ratio at the group level, in line with the guidelines we had at December 31, 2020.

The parameters, the capital parameters that we have, we present to them with 1 quarter lag, which is 236%. That's the solvency ratio. If we look at the return on equity in Q1, well, this is a very high ROE, nearly 19%, which is a good proxy for -- and portends well for the rest of the year.

If we look at sales, once again, what would I like to highlight? We're comparing 2 quarters with one another that had slightly different nature of transactionality. So we can say that the first quarter of last year was almost entirely outside of the negative effects of coronavirus. Whereas in the first quarter of this year, it's clearly under the influence of coronavirus. It was difficult to conduct business operations. We had the lockdown. It was much more difficult to attract new business. And despite that fact, we've been able to grow. And so if we look at sales year-on-year, we do see growth. We closed the quarter at PLN 6.15 billion, which, as I mentioned, is a better achievement in that we've been able to do that in totally incomparable conditions.

We're growing in terms of life insurance, both in terms of protection business as well as investment contracts. And we're also doing that through bancassurance channels. So the cooperation with our banking partners has once again affirmed the very strong impact of the group's composition on the results, the contribution made by the partners. We also see very robust growth generated in the nonlife insurance segment on the nonmotor side of things. What, unfortunately, was a burden, was a drag on us, this was the situation we saw on the motor business market, especially if you look at motor TPL. But I'll speak to that a little bit later.

If we look at the growth, we can see that our foreign companies made a strong contribution. So the growth year-on-year is some 6%, and so this is something that pleases us. If we look at the other segments of the market, we can say that there is greater demand for the health services. So we're continuing to do what we're well known for, and so it's 22% year-on-year. We also see growth in terms of assets under management and the investment pillar, so both our TFI as well as the bank TFIs have very robust growth of some 30% -- more than 30% in terms of the assets year-on-year and in terms of a recurring base. And so this is all the more pleasing to us. So we can say that we have a very strong start in terms of our sales in Q1 of this year.

If we look at profitability, this has also been a good quarter. As we've reiterated many times, it's not growth at all costs, but above all, we're thinking about profitable growth. What we're capable of reporting today is that we have very strong profitability on the non-life, and the combined ratio is under 90%, which giving consideration to what's happened on the motor market, we can say that this is a very good outcome. If we look at the return on the main portfolio, it's above 8%. So the results have contributed to that. So our performance in our equity portfolio has been very helpful here. This is a strong contribution in terms of our investment performance or investment result to the group consolidated results.

So we can say that there's still a lot of impact in terms of what's happening with coronavirus in the life side. And so we will remember that Q1 in Poland and in Europe, this is what they called the third wave of coronavirus. And this has led to a situation that the profitability in this segment is at a lower level than would be a normalized level for the first quarter. So I would remind you that the profitability, especially in the major segment, which is group and individual continued business, so this is seasonal profitability. Well, it's much lower in this -- in the winter and fall months and it's higher in the spring and summer. So there is some seasonality there anyway. But we have the additional effect of excess mortality, which, on a financial basis, it was responsible for an additional EUR 114 million gross, around PLN 90 million net of additional costs linked to benefits. And so the admin expenses are under strict control despite the investments in IT, despite the investments into digitalization or [ participation ]. And we saw some additional costs linked to that. And they're visible at the level of depreciation. We are -- if we look at our admin expenses, we can say if we look at the personal -- so staff costs, well, there is pressure linked -- well, wage pressure, generally speaking. This is something we're facing. But on the other hand, we also see the growing provisions for holiday leave. Having in mind the circumstances, we can say that the holidays, recreational leave is not being taken. So this is an additional offshoot of the pandemic.

So despite that, we still have a very high-return on equity, which is nearly 19%, 1-9, percent. In the strategy we published, we assumed that we would maintain the profitability, so the return on our equity. But above all, to ensure that we would maintain our safety and our ability to continue the dividend generation narrative. And so this is something that is taking place. So the management has proposed a dividend of PLN 3.5 for the period of 2019-2020, with a very safe level of equity, both at the consolidated level as well as at a stand-alone level for insurance undertakings. And so we have a safe and diversified asset portfolio.

So what has happened? What special has happened in the various business segments vis-à-vis the market? What's also important here, of course, is the market context. If we look at nonlife insurance, we utilize the most recent publications about the market data published by the Polish FSA, and this is for Q4 of last year. And this data shows us -- paints the following picture. If we look at motor business, the growth in premiums is 3%. That's the rate of growth. But this is primarily built by motor own damage premiums. But in motor TPL, as I mentioned, we saw declines. And these declines continued in Q1 of this year, which made a direct impact on the profitability in the segment. If we look at non-motor insurance, Q4 was, unfortunately, also a downward quarter, both in terms of Classes 8 and Classes 9 and other nonmotor classes of insurance. And we could say that the most negative contribution was made by accident insurance. So it's down by more than 11% year-on-year. And then we also had Class 8, Class 9 in property insurance, which was -- there was a difference of more than 2 percentage points.

If we look at some of the positive areas in turn. It's other TPL where the market saw positive growth rates of 5% year-on-year. If we look at the PZU Group, we have a stable market share of 32.6%. And so we have more than 50% share of -- or 50% share of the technical result.

So if we look at motor insurance segment, and we're talking about the situation that transpired in Q1. As you can see on this graph, and as we said at the beginning of 2020, we had anticipated that we were thinking about the market launching a new underwriting cycle at that point. We were at the doorway. And we were at the beginning phase of growth. Unfortunately, coronavirus struck and that cycle that was portended then was distorted, and the market moved into a horizontal trend.

So having in mind the limitations, restrictions on mobility and having in mind the lockdown, well, then frequencies tanked. So through the third and fourth quarters of last year and the first quarter of this year, the market shifted into a new point of equilibrium where we saw lower frequencies. And in motor business, year-on-year, they fell by some 15% to 20%. This is a pretty significant shift, which, unfortunately, was utilized by many of our competitors, unfortunately, to create new price-based incentives. This also, unfortunately, precipitated a situation based on data from Q4, well, basically, the market -- the motor TPL market. And so this is Class 10. But there was a technical loss after a long period of being profitable. And so it's more than PLN 170 million technical loss. And then 1/3 of all of the insurance undertakings operating in this segment. So P&C businesses will have reported losses in Class 10 insurance. And here, the Polish FSA has entered, and we're pleased that this took place. So the intervention from 5 years ago, it was very rapid, and so all of the insurance undertakings were asked to give explanations about how they intend to shape their distribution strategy, their price strategy, giving consideration to the fact that the market and the TPL section of the market has generated a loss as a market and how various insurance undertakings want to reinstitute price adequacy, having in mind the expectation that loss frequencies should revert.

So if we look outside today, the traffic on the streets is quite a bit higher than what we saw in Q1 of this year or in the latter 3 quarters of last year, so Q2, Q3 and Q4. So we can say that the level of traffic is coming back to a normal level, and that means we should reckon with loss frequencies growing quite high. And that means that the cost of losses will also grow. And unfortunately, we should anticipate such a situation taking place in the portfolio of the more aggressive players. We should see that they will continue to generate losses as they did in Q4. So we see that the regulatory is taking actions. And so I'm confident that this situation, coupled with the fact that we're exiting the coronavirus pandemic will -- should contribute to another underwriting cycle emerging. And this should have upward impact on the pricing of motor TPL insurance. And this, in turn, should bring up quite substantially the premiums for those products.

So PZU in Q1 has a slight adjustment of 1.5% if you measure it by gross written premium. And so you can see this primarily in the motor insurance. In terms of numbers, we're relatively flat. But in terms of prices, our prices were slightly adjusted. But this adjustment is totally different from the adjustment made by the competition. And that's why we've seen some attrition amongst highly price-sensitive customers. And it's my hope that this will reverse quickly once the market enters the next technical phase.

If we look at other nonmotor insurance, we've got very strong growth in corporate insurance, so electronic equipment, property and corporate insurance, so Class 13, general TPL as well as a mass insurance. We've been growing in accidental insurance. We also have the riders that are distributed by banks. We have ongoing growth in residential insurance. And all of this, of course, has been offset by what's happened in ag insurance. So we had a shift between Q4 of last year and Q1 of this year. So this is more or less the situation in the nonlife segment.

If we look at life insurance in turn, Q4 of last year is a continuation of what we've seen from 4 quarters. So basically, the shrinkage of the market in terms of single premiums, the shrinkage in terms of bank insurance, also for investments insurance. So against that backdrop last year, PZU Life saw 2% growth, slight growth, but it was growth. And that means that we have nearly 2% increase in market share to some 42%.

If we look at periodic premium business, which, for us, is the most important to us because this creates a long-term bond relationship between ourselves and our customers, we have some 45.3% market share, then we have nearly 60% of the protection business. And we also see single premium business having very strong growth, generated primarily by the bancassurance channel. And so the growth in market share is nearly 7 percentage points. So last year, in terms of the market position, it's very strong.

If we look at PZU Life in Q1, what I would like to draw your attention to is the fact that in our core segment, which is group and individual continued business, we have a gross written premium in a similar level as in 2020 despite the fact -- and this is what I started with today's presentation. Even though the circumstances are totally incomparable and the ability to generate new sales, the circumstances, the headwinds were totally different. What we saw very frequently, encounter very frequently, not only we encountered this but also the competitors, they encountered this, so our corporate clients were taking efforts to cut costs, rationalize their cost base. And that meant that they were, of course, whittling away at employee benefits. And so we saw employee attrition. So we saw a fewer -- a smaller portfolio for economic reasons as well as materialization of the insurance risks. And so Q1 of this year was actually under a lot of pressure.

If we look at health insurance, we saw growth. We talked about that. So it's more than 20%. If we look at subscriptions plus health insurance, 13% of the insurance itself. Hence, we worked very well with banks in the group. And we saw robust growth in the banking channel, both for protection as well as for investment insurance. And this made a positive contribution to sales as well as to the profitability generated in this segment.

If we look at the Health segment, we continue to do the same things. We continue to see growth, both in terms of ambulatory contracts as well as riders and continued business, greater numbers of contracts, higher numbers of customers. So these are things that we were active on doing in this period, attracting more people. So if we look at the number of contracts at the end of the year, we have now 2.8 million. So this is -- shows very solid basis. So I can remind you that in assets under management, we've seen strong growth, both in terms of in-house, our own TFI, as well as the banking TFIs. So we see greater assets under management, higher assets under management. And that means that we have a strong market position as the PZU Group in this asset management segment for third-party clients.

If we look at our cooperation with banks. We've grown some 30% year-on-year. Our market share is rising in bank insurance. If we look at sales in the banks within the PZU Group, well, that has doubled in Q1 of this year versus Q1 of last year. And so these are facts that give us a lot of reasons for satisfaction. If we look at the assurbanking, that's the inverse of bancassurance, we would like for this relationship to generate mutually beneficial results. So more loans, more deposits are being sold through our branches, through the outlets in the PZU Group for our banking colleagues. So this is a growth of some 45% year-on-year. We also have further development of that cash portal. We're present in more than 3,000 companies. So this is a fuel that can be monetized by our colleagues in the banking side.

So then we can recap the financial results. We said what the result was. But let's say a couple of words about the components. And once again, I'll begin with the gross written premium. We're growing, even though Q1 of this year was almost entirely a difficult period in terms of the lockdown. If we look at claims and benefits paid, we've seen growth. The growth was triggered by the coronavirus pandemic. We've seen growth in terms of claims and benefits paid in the life segment. We also see slow -- smaller surrenders in investments. And so all of this means that claims and benefits paid came in -- where they came in in Q1. So the result -- investment result was very, very strong. So this line of business consists of 2 separate parameters. Of course, we have the main portfolio. We already mentioned that we have a very high-performance in our equity portfolio of more than 8% in Q1.

On the other hand, we have investment products, so investment strategies of our customers, which are realized through our products. Unfortunately, it's slightly negative. But giving consideration year-on-year changes, this is a positive change. And so this is something that is pleasing. So not only PZU, but also our customers are able to generate returns on these strategies.

If we look at the admin expenses. As I mentioned previously, they're under control. We saw some delicate growth of a little less than 2.6%. Acquisition expenses are down year-on-year, primarily because of the decline in motor insurance. And so that shifted the composition of the overall portfolio and also for the acquisition expenses across the board. So they're down by more than 4% there. So as a result, we're able to generate a profit for -- attributable to the equity holders. We have growth of more than 40%, and so quarter-on-quarter it's nearly 30%. And so this is very exceptional result coming in at EUR 811 million. So we're well above what we saw in Q1 of last year as well as Q4 of last year. So there is no impairment losses taken, which means that we have an outcome of PLN 811 million attributable to equity holders of the parent company.

So we have good results, both in the nonlife segment, the life segment despite the excess mortality. We have margins in excess of 10% in the life business, which is very good, having in mind the context in which this result was generated, having in mind our policy on admin and acquisition expenses.

So maybe a couple of words about profitability in the various operating segments, and I'll begin with nonlife. So motor business, we have very good results. We can say that quarter-on-quarter, we're in the same place. If we go back to quarter 1 of 2019, we can say that we're more or less in the same position despite what's happened on the market, the motor market, and despite the inflation we've seen in terms of spare parts and labor hour fees. So despite these adverse contributing factors, we've generated a good result. We have a combined ratio of 94%.

If we look at nonmotor insurance, we can say that we have a very high result, even though we have recorded several higher-value claims, so unit claims, so in the agricultural section as well as in the residential section of our business.

If we look at our life insurance business, we've said that we have a margin of a little bit more than 10% in group and continued business. This is a level that is satisfactory, having in mind the circumstances in the marketplace. We've tried to normalize or reference this to a normal level.

And so at this point in time, I'll maybe shift the slide for a moment for you to have a grasp on what we're actually looking at.

Above all, what we would like to highlight is as follows: that Q1 of '21 versus last year, this is an increase in terms of the number of deaths in Poland of nearly 30%. The number of deaths has increased by nearly 30% year-on-year. This is because of coronavirus, the excess mortality triggered by coronavirus. And so this is what has actually occurred. And if we look at the average frequency or loss ratio of group and individual continued business in the first quarter of this year, we are some 10 percentage points above the standard level, having in mind changes in mathematical provisions. Well, this drops down to 5% to 6%. So as a result, we can say this is the additional impact contributed by the pandemic recognized in Q1 of this year. And in Polish zlotys, this is roughly PLN 114 million net impact. So slightly more than PLN 90 million.

So Q1 of last year in 2020, this was a quarter, as you see on this graph on the left side, well, the number of deaths, the frequency of death in Poland. But across Europe, well, basically, they escaped the seasonality. Last year, the first quarter, we had profitabilities in this segment in excess of 20%, which, having in mind seasonality in the summer and winter periods, this was in and of itself an oddity. And so we're looking at 2 quarters that aren't very representative. But if we look at the mosaic of representativeness, if we look at the incremental growth in the loss ratio year-on-year, so Q1 2020 wasn't a representative year where we have an increase of more than 16% in terms of the debt risk and mortality risk. So it's more than 17%. And so it's been slightly adjusted by having better performance in terms of disbursements as well as childbirth risks. So year-on-year, we had a little more breathing room as a result of what happened there.

So now we can go on to the investment results and performance. As I mentioned, the dominant factor was the performance in equity portfolios. We saw strong measurements of our exposures to one of the companies in the logistics industry, and that result and the profitability was so high.

If we look at debt instruments and interest, we had a comparable result year-on-year. So we had a solid contribution in the real estate business with a relatively safe composition of the portfolio. So debt instruments account for more than 80%, so we're able to generate robust yields. But here, it was the equity portion of the portfolio that delivered the impact.

So if you look at cost effectiveness, this is a topic which is very important under the current strategy, under the previous strategy. We're aware that the more effective we are in the cost-effectiveness category, the better the prices are we can offer. And so this cost parameter is starting to play a bigger and bigger role. And so Q1 has had an expense ratio of 7.2%. As I've said, we have seen some wage pressure. That's why staff expenses are up. We have the holiday provisions that are up, some real estate maintenance expenses and bigger depreciation because of our investments into IT systems. And so if you look at quarter-to-quarter, so Q1 to Q4, there's always that seasonality. And that's why we've seen a decline of some 20 basis points.

If we look now at solvency. Here, we present data with a 1 quarter lag. So this data is for -- is at the end of Q4 2020. And so we have -- so this solvency ratio already incorporates intended cash flows, payments to the regulator dividends, so the things that have been recommended to the shareholder meeting by the management team of paying a dividend of PLN 3.5 per share. And this has affected, of course, shareholder funds. And of course, this was supported by the ongoing cash flows in our various operating businesses, investment businesses. And so then we had adjusted by increases in provisions as well as reinsurance assets, and then the SCR grew a little bit in terms of insurance business. So we're talking here about underwriting risk having an impact. And all of this enabled us to close the year at 236%. And so on a stand-alone basis, it was almost 270% at PZU USA. PZU Zycie was coming in at nearly 350%.

And so this is the very good information, where I'd like to wrap up the presentation, and now I'd like to go on to the Q&A section. And I understand that I'll be able to look at the questions coming in from the Internet since we're still operating under the lockdown. Unfortunately, I can't look at the questions because the battery has crashed in the equipment. But we're ready and prepared. So thank you very much.

[Tomasz Kulik, executive]

[Interpreted] So we do have a few questions that have come in. Question number one from Santander. You have a very high dividend, but it could be even higher. It could also be lower. Why has the management recommended the retention of nearly PLN 1 billion in terms of what could have been allocated to a dividend?

[Interpreted] Well, if the question is posed that way, I think I need to share with you how we think about the dividend in the context of our strategy. I would not conceal that the dividend policy and the capital policy should support strategic execution. And for this reason, we endorsed or accepted a new capital and dividend policy, along with the new strategy, which is a normal practice. And so we were thinking about this in the following manner. As you recall, after all of the pertubation in terms of the inability to pay a dividend for 2019-2020 -- in 2020, Polish FSA sent a letter from the Chairman that insurance undertakings, under the assumption that they satisfy a large number of other parameters and requirements, will be able to share their results in such a way that 2019 could be -- the profit could be paid out at 100% if there's profit in 2020. And so the Polish FSA assumed or suggested that the cap should be set at 50%. So they suggested that we be conservative.

[Interpreted] Naturally, on top of that, there are our own expectations in terms of how giving consideration to the public strategy, what we should anticipate in terms of the capital intensity of our business, assuming that we would have a similar dividend payout ratio, as was the case historically. And where as a result, we could end up with different levels of dividend for the cumulative period of 2 years. So we've added also another lens, which is our dividend policy, which says it should be in the range of 50% to 80% unless certain things are happening, which perhaps could lead to a need to utilize this profit as a source of financing, transformational ideas within the PZU Group. And so this is a technical method of thinking.

[Interpreted] Basically, we're thinking as follows. We have nearly PLN 3.3 billion and PLN 1.9 billion in 2020. And then we had those ranges of 50% to 80% for 2019 and only 50% was the max. That was the cap for 2020. And that's how we had basically a range within which we should make our decisions, having in mind all those border parameters. And this was from PLN 3.02, so PLN 3.02 per share to PLN 3.16. So this is more or less a level that we had to stay within. And then having in mind the other elements coming directly from our strategy and from the capital mix, anticipated capital intensity of our other activities and the remaining period of the strategy and also the requirement to have a solvency ratio of 200% and above. And at the same time, wanting to recognize the fact that 2020 -- the result from 2019, well, that we hadn't made that dividend, well, this was something that we felt safe with. Having in mind also the upcoming repayment of subordinated debt. So our balance sheet continues to have subordinated bonds, which were issued in 2017 when we had the strategy and our capital needs linked to the banking sector at the time. Today, some 5 years down the road, we're coming to a point in time when we have to pay back that debt. So having in mind all of those elements, the level of PLN 3.5 per share is something that we believe to be suitable. That was a very lengthy response. I hope that I've been able to exhaust the question without exhausting the listeners.

[Interpreted] How is it possible that you've generated such good performance on your equity portfolios? More than PLN 500 million result in the equity portfolio for PLN 1.2 billion at the end of the quarter. Well, we've talked about this. We wrote about that in our financial statements. This is a result of our exposure to an entity operating in logistics services, this entity which the group invested in 2014. As a result, after 5, 6 years of being in the portfolio, this company went public. And having in mind the very good sentiment on the marketplace, this company was valued so well.

[Interpreted] So I see that there's a wide range of questions here. Intangible -- if you look at the value of licenses, it's up in intangible assets as opposed to the first quarter of last year. Where is this difference coming from? Well, it's because of the group getting larger -- the capital group getting larger in terms of what's happening in the banking side of things.

In the motor TPL due in Q1 2021, do you believe your combined ratio of 94 in motor and 89 in non-life generally are sustainable going forward?

[Interpreted] I'll respond to this question in the following manner. We're conducting ourselves fairly rationally, reasonably in terms of our pricing policy despite what the competitors are doing. And this has meant, in terms of our market share in -- we lost a bit last year because those people who are very price flexible -- have the greatest price elasticity have decided to look for the lowest price. And this was driven by irrational price behaviors or pricing policy of our competitors. So I want to be confident that the losses that appeared in Q4 and the anticipated losses of our competitors in first quarter of this year and the intervention, which I mentioned to you from the regulator side, will contribute to price hikes. And this would enable us -- as opposed to what happened in 2015, 2016 will enable us to maneuver this price slowdown. Moving delicately, we'll be able to cross this river with a dry leg. And so we think if we look at our results in the nonmotor business means that we have a very good proxy for continuing to have such levels of profitability in the segment.

[Interpreted] So when we talk -- next question. When we talk about our life business, and we look outside of 2021, can we think about generating profitability in excess of 20%? This is a question about our group and individual continued segment.

[Interpreted] I can respond to this question in the following manner. It depends. It depends what's going to happen later. And we have 3 different scenarios. The first scenario is as follows, and we've experienced this in 2020. In 2021, we're experiencing this. There could be a reaction especially in terms of the death-related risk, mortality risk. Well, this is a case where you make a single payment if mortality transpires, which is something that's different from motor business where you can't reinsure the same car. So we should anticipate that the marketplace should enable us to generate better profitability -- slightly better profitability in this segment.

[Interpreted] What the competition will do, will prices move? Well, this is a totally different discussion. But from the point of view if other parameters aren't changed, there is a chance that this could happen. A different scenario is totally different. This scenario would suggest, this is scenario #2, that since for the last 12 months, we've had a lot of conservatism in terms of visiting the health service because we were -- perhaps rationally, perhaps not entirely rationally as customers, especially when we say or speak about coexisting diseases, there may have been some health neglect by patients. And we're talking about a health debt. This is what this is called, a health debt.

[Interpreted] And unfortunately, the second more negative scenario could be as follows: that coronavirus will come to an end and we'll start dealing with extensive health problems that will emerge, not so much in PZU's portfolio, but in Poland, across the board. Because for the last 12, 15, 18 months, it's not really clear how long the pandemic will last in 2021. There's been some health neglect where ongoing health care was needed. And so if this scenario materializes, then for totally different reasons, for totally different risks, we could continue to be under pressure. And this scenario doesn't have a probability of 0%. And then we have a mixed scenario that the situation will be somehow mixed between these 2 scenarios. Well, then perhaps we'll be able to think about a high double digit in the teens. But 20% would be, I don't know, an upper limit, but would be quite a bit. I think the upcoming months and quarters will show what's going to happen. It would be very difficult for me to respond to this. Naturally, we have some models, we have some assumptions. This is shrouded in commercial secrecy, so we don't want to speak to this issue and share our thoughts about this directly. We're talking about different scenarios. We'll see what's going to happen. But as you recall, last year, we benefited from lower utilization rates of these health risks.

[Interpreted] What might the operating margin look like in group and individual continued business? I think that's what I just responded to. And what -- if things normalize in terms of frequency of claims, what sort of trough would you anticipate in the combined ratio? And how would you reprice that?

[Interpreted] I anticipate -- please don't treat this as a declaration. I anticipate that the profitabilities may depreciate, undergo some depreciation, having in mind that we'll have a difficult period where transaction prices -- where this will be the working price in the portfolio. So the earned premium per risk, which will pay for losses, this will be the premium from last year, and then we had them at lower levels. But as we said, we'll come back to previous frequencies. And the amounts to be paid of losses, we would be under pressure because of that. And so basically, these 2 vectors would close in on one another. We've launched a few initiatives, which could enable us to maneuver that situation -- through that situation in a better way than, a, the competition; and b, then would result from prior experience. There's a lot of initiatives in claims handling, benefits handling, which should contribute to reducing the average value of a motor loss. And if we're successful in completing this, then I hope, as I've said, the result will be pretty decent.

[Interpreted] For which part of the investment result and -- so to what extent is the response of the shipping segment? Well, in a section, it's PLN 470 million gross. It's written right in our financial report. I would invite you to look at that.

[Interpreted] So will your model of operation after the pandemic may be different from the one you had during the pandemic? And prior to that, should we see some costs falling -- unfortunately, the [indiscernible] was jumping around. And could this have an impact on the admin expense ratio? And the acquisition expense ratio, could they fall?

[Interpreted] I understand that the thinking here is as follows in the question. After the pandemic, a lot of sales will be done through remote channels and they don't generate commissions. And as a result, this should have a positive impact by reducing distribution expenses. And here, I can say that those of you who've been able to track the insurance market, when direct players penetrated the market, this is the one we're talking about. You're fully aware of the fact that moving traffic into the remote channel does not reduce admin expenses nor does it reduce distribution expenses. Why? Because this traffic needs to be managed. It has to be moderated. And this means that you have to make expenditures for advertising in order to be able to communicate with customers and attract customers there. Then you have expenditures through sale, SEO. We also have IT and technological support CapEx, which then later, once you reclassify it, is an integral part of your acquisition or admin expense burden. And for this reason, this redirection of traffic into a direct model rarely, especially at the initial phase of that change, is accompanied by having a lower level of distribution expenses in your sales. So I would be very cautious in terms of this expectation.

Could you quantify the change in pricing for PZU book and how this compares with the pricing for the market year-to-date?

[Interpreted] I think we already talked about that. This is an integrated part -- integral part of that presentation that we shared with you.

Also, you talked about spare parts' higher cost and wages' increased pressure. Could you please comment a bit more on those?

[Interpreted] From the point of view of the cost position, I can say no more, no less than costs are and will remain under special supervision. Up until now, there was a lot of cost discipline that we're not going to release the [ relines ] on that. That's part of our strategy, and that's something that we'll continue to pursue regardless of what's going to happen in the marketplace. We're going to want to make sure that our costs were not growing faster than sales. And I think that's about all I can say under this question -- about this question.

Motor underwriting cycle to reverse given frequency is normalizing. How do you see pricing and claims inflation to evolve for the rest of this year?

[Interpreted] I have the impression that I've already covered this question quite strongly.

[Interpreted] Do you still plan to redeem the subordinated bonds? We plan to do things that we obligated ourselves to do because we believe that we should stick to our obligations.

[Interpreted] This was the last question we had from the Internet, so I'd like to thank you very much cordially for today's meeting. And I would like to wish all of you a very nice rest of the day. And I hope that we'll be able to return to the post-COVID situation. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]