Powszechny Zaklad Ubezpieczen SA

WSE:PZU

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Magdalena Komaracka, executive]

Good morning, ladies and gentlemen. Let me welcome you to this conference, which will be about the results of Grupa PZU for Q1. The speakers are Artur Olech, the CEO of PZU; Jaroslaw Mastalerz, CEO of PZU Zycie and Tomasz Kulik, CFO of the Group.

[Artur Olech, executive]

Good morning. Thank you for coming. We will be speaking about the results today. We would like to talk about the latest developments in the group, the changes that have taken place, and also we would like to discuss the upcoming changes related to the Management Board. First of all, we would like to introduce ourselves and we would like to tell you that we are going back to communicating results in this new way, meaning that the CEO will take part in this conference and also other important officers from the company.We will also stress management and cooperation with banks more now, and we think that this will be an asset for us to strengthen our relations apart from the insurance branch. And Tomasz Kulik is with us here. He has been doing -- communicating results for a few years now. He has been in charge of communication. So for the sake of continuation, we are here, the 3 of us. Also, let me tell you a few words about the competencies of people, who are going to collaborate with the Management Board. We have hired people with strong -- with a lot of expertise and insurance. And that they will contribute their know-how because there are some important challenges ahead of the group.Let me mention Elzbieta Hauser to begin with. She will be in charge of the digital aspects, individual business products, also pricing motor insurance, which is an important topic we need to focus on. And we need to strengthen the competences related to that. Bartosz Grzeskowiak, he is in charge of corporate business and the mutual insurance company, also to make use of some synergies and opportunities. He worked in insurance before in many companies in Poland, and his expertise will be very useful for us.Jan Zimowicz will be in charge of collaboration with multi-agencies, and he will be also in charge of bancassurance, which is a field which has a lot of potential in the group. We are going to develop a model in this respect to coexist on the market with other banks and to make the most of our market position. There have been many personal and organizational changes over this last month.Changes have been made in PZU SA, PZU Zycie. In business areas, we are strengthening further professionalization of the team and we are also making changes in the most important companies in the group. So the most important changes have already taken place. We wanted to do certain things in a swift way to bring stabilization into the company. So, that is clear now who is holding the most important positions. Processes are ongoing to appoint members of the Management Board in the banks. These are very confidential processes. So, I'm not going to comment on that. But these processes are ongoing.A few weeks have passed now. The group is a very complex organization that makes very different lines of business. So, I think that the most important thing now is to develop a business model because the previous one, we think should be changed, should be changed in such a way that the responsibility for different business units is addressed in a better way, not a functional way, but a business way, P&L-based way. We are going to work on it, and we are going to work on it in the next weeks or months, 2 months in order to develop a new operational model and redefine the scope of responsibility for the members of the Management Board. So, this will take place in the upcoming weeks, and we'll keep you up to date about it. And this is to make the most of the potential of the group and to address the most challenging areas like motor insurance or health insurance.Before I give the floor to Tomasz, I will discuss the results of Q1. Let me mention the most important figures, figures that are being announced and published today. Sales; after Q1, it amounts to almost 10% of growth year-to-year. So revenue on insurance is almost PLN 7 billion. The growth is outside motor insurance, mainly in the corporate area. This is the double-digit growth here. Tomasz will give you more details about it. This is very good news.Motor insurance is a challenge because there is a huge pressure on prices and on profitability, and a lot can be improved here. This is what the market is like, but we would like to generate more value in terms of the technical results here. So, I think it's going to be a longer process. This will also depend on the behavior of the market because it's very competitive now. But we have a multi-brand, PZU and Link4. So, we would like to address the needs of customers in a better way and also improve claim handling to give value added to customers, so that they buy more products or are willing to pay a higher price. So, I think that a lot remains to be done here.The capital position is very strong. Solvency ratio at the level of almost 230%. So it's a very high result. So, you probably realized compared to our competitors and other companies that are a benchmark, it's a bit lower than last year. This is because of the new capital requirements, but it's still a lot. It's still better than our peers. The Management Board has proposed a dividend per share of PLN 4.34, which is about 8%, which is a lot. This will be subject to the General Assembly to vote on in the upcoming weeks.Now the core business. There have been some negative trends in Q1. This is about the frequency of claims and the inflation rate of claims. There has been a huge growth in non-motor, but we have been affected by the motor insurance situation. But thanks to our investment policy, we have managed to make up for it by means of our investment activity.So, there is a growth year-to-year, but there is a very positive of the banks -- positive contribution of the banks as well, which is thanks to the operational activity, but also thanks largely to the macroeconomic situation. This is important. Operational margin; margin is of almost 18% and return on equity is over 17%, which means that they are good results for PZU that are a sign of a lot of stability. It also proves that PZU is capable of generating good results and good margins.We have some challenges ahead of us. These are the profitability of the insurance business, especially since the macroeconomic trends are going to be challenging as well. There have been high interest rates, but now the trends probably are going to change and this will affect the economy and we will have to handle that and manage that with the general result of the group in mind. And I think that the core business will be also very important in this context.Now, a few things we are working on. First of all, personnel changes. I've already mentioned that. We would like to make the most of our position to strengthen it in some areas where we -- so it could be stronger and generate more growth. And I mean, life insurance here, mostly individual life insurance. As you know, the group is a beneficiary of the fact that it has a strong position on the group insurance market. We have some strengths. This is related to our distribution capabilities, and also our relations with certain companies and market stakeholders. This gives us additional potential for growth.Health insurance now. It's a very challenging area, but there's also a lot of room for growth here, both for operational growth, sales growth and also services and related aspects. So, I think that growing these aspects would allow us to generate a better result, and we would like to compete with other companies on the market whose position now is stronger. So, a lot needs to be done still. I believe that the third quarter will be about analyzing measures that we would like to take in terms of optimizing our expenses.I believe that we will also need to better reallocate or better invest our funds into those areas that have growth perspective, and that will help us mitigate risks both in the motor insurance segment and health insurance. Last but not least, you are all aware that this year, a strategy adopted by the previous Management Board is coming to an end. We have started developing a new strategy. We have already taken some measures. And after we announce our Q3 results, we would like to announce the new strategy.The new strategy will hopefully address all the challenges that lie ahead of us. The new strategy will include a new operating model. Actually, it's quite possible that we will announce the new operating model before Q4. We will not wait until the end of the year to announce it. The strategy will also define other areas of our operation. We will have a better operating model in terms of synergies within the group, in particular, cooperation with bank, that is bancassurance and assurbanking worthy of the name. I believe that myself, [ Janik ] and other members of the team can bring -- can contribute a lot based on their experience in work with other organizations. We also want to engage in a dialogue with heads of banks that will be elected soon, the new CEOs.The new strategy will also present our approach towards management of the capital group, banks in particular. We wanted a future model to generate more value for our company and for the group. So the business models and focus on value, these are the main 2 elements of our future strategy. And these are the issues that will be discussed in the process of preparation of the strategy. There are also a few issues within the group that we need to tackle because banks, of course, but investment funds as well. And therefore, we need to ask ourselves how we would like to continue running this part of our business.The insurance segment goes without saying, namely PZU, PZU Zycie and Link4. I believe that there are still a lot of issues that we need to analyze and adapt it, so that it contributes well to the top line and to bottom line. So, I believe that these are the issues that we will tackle in preparation of our new strategy.Now, let us move to dividends. I have already mentioned the amount. The rating agency has given us a stable rating. This is based on our results and on our operating model, and on our capital position as a group.Now, I would like to hand over to Tomasz.

[Tomasz Kulik, executive]

Thank you.I will be brief, so that we will have a lot of time for Q&A because I expect quite a lot of questions. Let us begin by the non-life insurance segment. What is important is that after a strong growth in Q4 2023, where our market position measured with written premium went up to 33%. This was our market share. In Q1, we had an 11% year-on-year growth. This growth is generated by non-motor insurance compared to our peers. So, we have reported a growth of almost 22% year-on-year. And we're proud of it because these products are more predictable and easier to manage in terms of profitability and its contribution to consolidated results. The products that were faring the best was insurance against fire and other damage to property, marine and inland waterway, Casco insurance, just to mention the 2 of them.Now in terms of motor insurance. Here, our result was visibly worse. The main product that fuels sales is autocasco, with a 6.4% increase year-on-year because the portfolio -- after a solid growth in the second half of the second year, we had a good growth at the beginning of this year. And this will affect the further structure and dynamics of growth of revenue from insurance products.Now, what are our product initiatives? We do not talk about it usually during our quarterly conference. Still today, I would like to mention a certain change in our approach to non-life insurance products because it is usually interpreted in the context of the price and the value. And we would like to highlight that PZU Auto insurance offers additional services. For instance, assistance in case of failure, such as towing, I mean, covering the cost of towing, payment of labor costs when repairing the car and providing a replacement vehicle. These additional perks are supposed to incentivize our customers to choose our policy because we offer added value, not only a good price, but also good services. We also need to bear in mind the age structure, if I may call it, so of the vehicles on Polish roads. An average car in Poland is 13 years old. So, it's good to have this type of policy like PZU Auto.Life insurance. In Q4, we had an increase of 7.4%. The best dynamics was in Category 5, that is riders. In that segment, we had a 10% growth, while in one-off insurance, premium was worse. We had negative results. And in Q4, we had a 20% drop year-on-year in that segment, that is one-off premiums. Our life insurance, both group and individual, continues to grow steadily by 4% year on year.The health insurance portfolio is growing. We have also received quite a lot of premiums in employees' pension schemes. There was also an increase in individual insurance, a growth of 17% to 18%. Also, we have recorded quite substantial sales of insurance products through banks. Last year, we started working with a new bank, namely with VeloBank. Our core product, SPE, is still very much coveted by our customers.Now, life insurance, we want to offer our clients flexible products. So it is flexible in all possible terms. There is some insured premiums, et cetera, et cetera. Also within the package, there is a possibility to offer a coverage for the whole life. We also offer hybrid products. A hybrid product offers a large sum insured in case of death and also the possibility to save money for the future. The products differ in terms of risk profile and investment strategy. They also guarantee the protection of our customers' money. And I believe that this makes us stand out against our competition. And these products are selling quite well now.Now, health, the health pillar. In the health pillar, we had yet another quarter under huge cost pressure. This encourages us to improve our services and the quality. We would like to redirect most of the traffic either to remote channels or to own facilities. We continue to develop to grow the scale, like, for instance, arranging an appointment online or offering remote medical consultations. Steadily, year by year, the number of people using this type of services have been growing and this affects the price of the medical service. And that's important because there is an inflation of costs of medical services.At the end of the quarter, we have signed additional 3.4 million contracts, which is a growth of 4.6%. We also offer individual packages, such as For You, or [ here and now ]. These packages are adapted to the needs -- varying needs of individuals, assets under management. In that segment, we have reported major growth. New equity that went into investment funds is at PLN 13 billion. So, this is an increase by 12.1%. So, there is a change of position that is caused by assets and our share in the active sale. This means that we are approaching our strategic goal, which is, let me remind you, PLN 60 billion. Currently, we have PLN 57 billion and a trend to grow. In investment funds, we had an increase by 37% and banks, 33%. This is also caused by the synergies that were referred to by the CEO. ECS at the end of the quarter fares very well. We had a stable dynamics and a good result.Bancassurance and assurbanking, in that segment, we want to achieve high growth and we managed to do so, a 40% year-on-year, measured with a written premium. So, we are selling through our bank channels, together with Bank Pekao and Alior Bank, the growth is at 20%. And we believe that there is still a room for improvement and the room for achieving even better yield. Now, we need to bear in mind 2 pieces of information. First, we need to adapt to new recommendation, the so-called U Recommendation. That is how the value for customer in bank products should be recognized. It's a major change.The market is, this year, a bit different than last year. There is a growth of demand for banking services. And our product -- insurance products are complementary to banking products. What does this mean for our results in Q1. Gross insurance revenue went year-on-year by almost 10%, went up. This was caused by a very good result in the second semester of 2023 and Q1 2024.As Mr. Olech said, we had major growth in our corporate segment in non-motor insurance, and I will discuss it in details in a moment. In life insurance, we had a smaller growth, 6.8%. And the growth was fueled by sales of individual policies. We have also reported an increase of 12% in selling products abroad. The portfolio of non-motor contracts is growing, and I mean, corporate contracts mainly here. So the reinsurance costs are growing as well. Therefore, because of that, the net revenue is a bit smaller.The frequency means that motor products are under a huge pressure here. When we published results for 2023, we told you that February and January saw double-digit frequency. Then it got better, but then worse again. This has an effect on the profitability of motor products. Also, if you take into account how the price is behaving now, and I will discuss that in a moment.Let me mention life insurance now. Profitability has improved. There is a lower death rate now. So, we have gone back to the levels -- pre-pandemic levels, 2017-2019 levels, which means that the margin is growing year-on-year, the risk margin. The death risk margin is under a certain pressure because of what's going on in health insurance. Q1 has finished with a slight drop off in the insurance services result. This is a slight drop. But if you take into account the net financial results and the location result on the surplus portfolio and also other costs that are going down, the first -- the Q1 can be closed with PLN 757 million. And there is an important contribution from the bank segment. So the net result amounts to PLN 1,254 million, which is a growth of 9% compared to last year.Now, let me break this down into segments. Now, the mass segment -- the mass insurance segment. We've had double digit growth in MOD and non-motor 5.3%. This is related to the fact that many new cars have appeared on the market over 20% year-on-year. This is the increase of new cars. And now second-hand cars, their number has gone up by over 25%. So, you can see that the market is now evolving very dynamically. Unfortunately, the scale to price growth is not as dynamic and this has an effect on the growing claim ratio. But the loss component remains stable and this is in a way good news because this shows a very interesting distribution of the margin in the portfolio. The depreciation is not in proportion of the growth of scale. So, this is very interesting, and it proves that it's a sound portfolio, which can generate value.Costs are growing, and this affects all the segments. HR costs, this is because of a huge inflation rate. Salaries have been growing up -- have been growing and the economy, et cetera, also in the financial market. And some areas like banks, salaries are growing at a higher rate even. We want to be an attractive place to work, and we would like to attract workers that can generate value for PZU. Therefore, we need to offer attractive conditions to them. That's why the operational result here has gone down by 40% year-on-year.As I've already mentioned, the situation has been affected by the motor insurance market. Before, we had 11%, 12%. Now, we are nearing 4%. These data have yet to be confirmed by the financial regulator. And MTPL, a slight change quarter-to-quarter, 3.5%. But the number of accidents has changed significantly. These are according to police statistics, so this is not our portfolio. This is police statistics. People are increasingly mobile now. They commute to work back again. Fuel prices have gone down, so people go back to using their cars more.Now the corporate insurance segment, a huge growth here, mostly non-motor and MOD. And the insurance service cost has gone up much more. Therefore, the operational result generated in this segment amounts to 43%. The margin has improved though, combined ratio at the level of 77%, which was 83% in Q1 last year, so a drop here. So, we might say that the situation has been difficult on the motor insurance market, but the situation in this segment is not that bad.Now, group and individually continued insurance growth almost 6%, but also the costs are growing at a higher rate and the contractual margin is an issue here, which is recognized in every period. So, you can see how the insurance service costs have been behaving. There is a slight increase here, but the last component shows quite an important growth. This is because of the renewal of the old portfolio with lower premiums because of the inflation rate pressure.On the other hand, there is an important growth because of the frequency of health risks. There is also a certain pressure on us related to the take up of healthcare and how we can transfer the cost to our final customers. The death rate, well, the operational results here is growing, the margin of over 2% point. These are the statistics. Compared to Q1 last year, the death rate has gone down and is nearing the levels of Q1 2019. This is good news.So, we can say that the pandemic is over. We are back to pre-pandemic levels. The health debt remains to be an issue though. We'll see how it evolves. But now the situation is positive. This has a positive effect on profitability and on the loss ratio, 3.8% in this segment under a certain -- a slight pressure from the health products, which have brought the loss ratio up a bit.Now the individual protection insurance. The dynamics is very good, as discussed, and the cost of insurance services has gone up. But the margin now -- its growth year-to-year is 16%. PZU continues to generate value. The contractual margin in group and individually continued. And in the individual protection insurance, it's growing, also in new sales and additional sales for the portfolio. So, you can see that there is a growth, although not very big. And this will have an effect on the CSM and the results further on.Investment result continues to grow at a stable rate. Debt instruments are an important part, and profitability of the portfolio is 5.5%, and the higher interest performance. This is because of the fact that there has been an important purchase activity to buy treasury bonds and also improvement of the equity instrument portfolio and also the health market and our investments into health market companies. This has given us a very positive contribution in Q1. So, these assets have a huge increase year-to-year.Now, real estate. And the performance here is a bit worse than last year because of swap points versus Q1 result. We have already discussed solvency, but this is solvency according to our consolidated statements. SCR, here we expected a maximum level of dividend, 80%. So you know what the recommendation is like. So, PLN 4.34 per share. So, this would bring up the levels at the end of the year by 6%. So, we would be even. We would perform even better compared to our peers. So, I'm telling you this -- to say that the group can be quite confident about its future and the strategy and the generation of value.And now the dividend next year and the single -- the standalone result of PZU SA. It's 30% of the same result last year after Q1. Let me mention the subsidiaries here, and the valuation method and the copyright method. This here contributed importantly to the standalone result last year. This is because last year, we were under the purchase price because of our banking assets. So, you can see that it looked different and the 3 companies contributed in a different way to the standalone result.Now it's no appraisal. It's the dividend received from the banks and from PZU Zycie. It's going to be higher year-on-year by about PLN 250 million. Speaking of our strategy, the situation looks quite interesting. Gross insurance revenue, 25%. The health pillar, we are above. This means that we should stress this pillar stronger. We should focus on it and the change year-to-year has been over 20%. We have already discussed the result. I just want to mention that despite a small drop of 1.7 percentage point on own funds -- on return on equity revised. According to the latest IFRS. we are still doing quite well compared to our peers.Thank you.

[Artur Olech, executive]

Thank you, Tomasz, for presenting the financial results.Ladies and gentlemen, as I've said at the beginning. And I would like to refer to this on a finishing note, our Q1 results are obviously very good. This is a result of a combination of factors and circumstances. Some of them relate to our insurance business and insurance products. In our corporate segment, we managed to generate quite a lot of value and this is well reflected in the Q1 results. Also, the economic situation allowed us to make good return on investments. Also, the bank situation is good. I want to say that we should not rest on our laurels. These good results should not make us complacent because there is still a lot to do and a lot to improve internally.We have started to work on this, in particular in the motor insurance. The market is very competitive, and we need to make a place for ourselves on this market. Selling our products is one thing. We also want to introduce services that are attractive for our customers, and we hope that this will be the driver of our sales. So, there are challenges ahead and we should bear them in mind, even though we are quite proud with our good results in Q1.Our group will have to face some difficulties. And I know that questions regarding those challenges may appear. But please bear with us because we will address them in our strategy that will be published later this year. We want to work on our relationship with the banks, and also we want to take our business model out of the Polish capital group and to use it elsewhere.Poland is the fifth -- ranks fifth as among the largest economies in the EU. But the level of penetration of insurance products is only at 2.5%, while in other developed EU countries, it is at 12%. This is 1/3 of the average EU penetration level. We need to work on this together with our peers and with the regulators. We need to convince Poles to purchase insurance products because this means transferring the risk from the state treasury to private equity. So, this is something that can be very helpful for the entire economy. So, we can start to act and adopting a multi-brand, multi-product approach. He wants to be present both in Poland and abroad. So, we hope to introduce this in the coming months. And what we will manage to achieve will be presented in the strategy that we will unveil in Q4.So that's all from us. And we are opening the Q&A session.

[Unknown Executive]

Are there any questions in the room? Okay. There are a few questions that we have received online.

[Unknown Analyst]

[ Peko Beete ]. I have a few questions. The first question is a standard one. It concerns the prices in motor insurance products. You have presented them in -- you have presented the figures for Q1. Do you have any information about April and May? For instance, what is the number of claims? Is it going up or down?

[Unknown Executive]

Well, the number of claims is not really going up, at least not quickly. I think that we are dealing with now with a different trend than in the previous years. As you may notice, the price is not following the -- does not follow the trend. So, we tried to set the tone on the market in terms of price. We actually attempted to do this last year. And actually, other market players did not follow suit. So, we must act responsibly. We need to take the price factor into account, building a long-term relationship with the customer. This is what we care very much about.Thirdly, we try to think differently. PZU Auto, an insurance product is not just a tax in disguise. As I've said before, we have developed an offer that takes into account the average number of years that a car was on the road in Poland. So, this should offer good value to our customers, right? Because this can be -- this should bring together the benefits of TPL and MOD because the customers ultimately do not analyze in-depth of TPL versus MOD in an insurance product. The client just looks at the bottom line.We do not have latest market data available, but we are aware of some trends. I think that the trend is generally positive, but let's not get ahead of ourselves. However, the moment of truth is the payment in banks. And the moment of truth in insurance is not selling the insurance policy, but the loss adjustment. And if the customers will see our added value in terms of loss adjustment, then I believe this will translate into revenue and the number of policies sold. What I have in mind is how quickly we are able to handle a claim, et cetera, et cetera. If we deliver, then I believe the customers will be willing to pay a higher premium because as we've said before, motor insurance market is highly competitive and it has its own rules. Having said that, I'm rather optimistic about the future.

[Unknown Analyst]

I'd like to ask about the investment result and in particular about the interest on the debt portfolio. I have a sense that it's going down quarter-to-quarter, which actually is contrary to what you've said about the new portfolio. How do you explain that?

[Unknown Executive]

So the interest result, you said is lower. So quarter-to-quarter, so can you be more specific, Q1 to Q4? Why? Okay. First, the strategy. Maybe -- yes, actually, I will answer by saying it depends on the strategy. There is a strategy that is focused on protecting our -- safeguarding obligations. So even though, we buy short -- we buy debt instruments with a good short-term yield. But if there is any volatility, then it is recognized as a capital surplus. And I believe that you're also aware with our return on equity quarter-to-quarter and year-on-year. So it goes down by 2 percentage points, even though the results are going up. So, this reflects changes in equity.There is also -- our instruments are reevaluated. There is also an increase in the bank assets that make it to the balance sheet. So yes, it depends on the strategy basically and then where the result is allocated. So, I'm not sure. So, this was regarding Q4 because I was -- I'm not really sure what is the point of reference that you're mentioning. So what happened in that period is as follows. We managed to deliver 2 things. We have extended the average duration in the portfolio with amortized cost by 1.5 -- by 18 months. In PZU Auto, it's 8-plus. In PZU Life, by 12 months. So it's about 8 years. So ultimately, we are going to benefit from the increase in -- from the growing interest because of the moment in time when we purchased them. In Q4, maybe there is a slight difference. But yes, this is the perspective in which I would present it.

[Unknown Analyst]

Now the question about equities and the dividend, 235, it's quite a lot. And the nominal dividend value is quite high. But the consolidated result is a bit below the long-term average for the group. Especially that if you paid out 80%, then the coefficient would still be high. So, why are you so hesitant to pay out the dividends?

[Unknown Executive]

I would answer this in the following manner. Our main goal remains the same. We want our shareholders to have not only attractive dividends, but also growing dividends. Let's take 2023 Q4 when the Polish Financial Supervision Authority made its announcement. So, we decided to pay high dividends, and then we decided to decrease it because keeping it on such a high level would not be possible given the standalone result of PZU SA. That's one thing.Second, we are actively seeking growth opportunities, as our CEO said. So, we analyze where we can be in the future with, let's say, our health insurance products, where we can be on the market, what our market share is going to be in 12 months and making place for us on this market requires investments, especially if we want to pursue a different growth strategy than just organic growth. So if we want to maintain high yield -- in order to maintain high yield, we decided as we have just told you.So let me mention our peers now. If you have a look at how they distribute their dividend, the payout ratio there is about 60%. And have a look at the dividend yield of other important insurance groups that can be a benchmark for us. Here, the yield is a bit lower. Of course, it also depends on the interest rates that the big [ board writes ]. So there is a relation here. But if you look at the big market players, they have taken sustainability and generating growth. And we are going to announce our new strategy soon. I think it wouldn't be responsible to pay you the maximum dividend today, which would largely go above the 100% of the result of PZU SA. And afterwards, the interest in the group would decrease.And let me also add that we are in the process of changing, and we will have to drive a new strategy and the dividend policy will be part of it. So overstretching ourselves in one way here wouldn't be good. I think that what we have put forward strike a balance. It's a balanced approach, and we have to think about it also in the context of our potential growth and acquisitions and challenges that are ahead of us. Also related to the capital requirement that might change. There are a few uncertainties here. That's why we have tried to offer you a balanced approach, and the positive signal for the market.

[Unknown Analyst]

A question about strategy and the bank segment. So the analysis of both the banks. Will this also touch upon the structure of the group because this is not the usual thing that an insurance company as a shareholder in banks?

[Unknown Executive]

Here in this meeting, you do realize we cannot give you any information that could shape the share price of Alior or [ Pekao ] because you know what the strategy means. You also cover Pekao SA and Alior. Some of you at least. So if you are taking any scenarios into consideration, any information that might have an effect on the share price, we can't give it to you. So, we can't answer this question. You have said this is quite unusual construct. So as a market expert, I can tell you that it is unusual. Indeed, you know the history of PZU. We'll publish our strategy in Q4. And it will include our vision of managing this financial conglomerate. We'll have a take on that. But as I've said, it's not going to be very detailed because this could have an effect on the share price of one company or the other. Because as you know very well, even if I tell you that we are thinking about something, it might have an effect on the share price. But we need to address the question of a better model of collaboration synergy. We have a nice growth here, as you've seen. That's great, but there are some specific standalone products, wherever customers are involved.We can still do a lot of things if we use specific brands or lines of products. The logic of a bank -- of how banks work is different, how they offer products to clients is different. And this operational activity will also be part of our strategy because we think that this is a very attractive business area. And also let me add a point. We would like to boost synergies. This is our goal. But of course -- and we will follow the rules of arm's -- at arm's length of this type of transactions, because there are different minority shareholders in these institutions. So whatever is done, it needs to be a win-win for both organizations always.

[Unknown Analyst]

And getting back to insurance, a question about your expectations and the motor insurance prices on the market, the prices are growing, although at a sluggish rate. So, I'm asking this question in the context of the technical result of your competitors. I'm not asking about what has already happened because we have seen that in the chart, but whether you see any inflection points. Maybe your competitors are already saturated with increasing the prices, or maybe you are expecting the prices to grow even more.

[Unknown Executive]

So technically speaking, the prices have gone up as you can see. So the prices are now much higher than what we have shown you here. This is the trend we have noticed on the market. As I've said, the environment is highly competitive and it has its own rights, but there is still a lot of room for the market to be challenged because there has been a double-digit growth in the number of accidents. So to go back to the previous results, I think we need a few quarters to make it, because the contracts we sell now won't perform until next year. So maybe the effects will be visible in Q1 next year and not earlier.There's also -- what we see today is the effect of the contract sold last year. So, that's just what the business is like. If we are to speak about motor insurance prices, we also need to speak upon the value provided to customers. So the claim handling, how fast the process is. Here or there is room for increasing prices and persuading customers that it's worth paying more for an insurance policy. So, I'm not going to tell you how much.

[Unknown Analyst]

No, I'm asking about the market trends and whether the prices are still going to increase. I'm asking about the market and the competitors, not about your philosophy.

[Unknown Executive]

I think that the market is not profitable, is not good for anyone. And I think, and I hope that others do realize that are on the market.

[Unknown Analyst]

Okay. So now moving on to life insurance group and individually continued insurance. The growth rate has gone up, has sped up. I've read somewhere that this is because of the fact that prices have gone up in the health segment. Is it just a one-off adjustment or is it a new policy? Is this a long-term acceleration?

[Unknown Executive]

If you look at life insurance at PZU Zycie alone, so you're looking at its P&L. I represent the old school that the value of the company is the value of its portfolio, plus net asset value, plus the capacity to generate new business. So in the short term, what you see now is that we make contracts. There are contracts. They can be repriced each year. They are short term. But to us, it's the value of a long-term contract. So a contract we sell has a new business value, has a profitability.What you see is our pricing adjustment to the expected margins. And yes, there is an inflation of the health cost, it's higher than the average inflation rate. Health services, the inflation here is made up by the personnel cost, highly qualified medical professionals. Health care professionals used to be quite cheap in Poland if you take the fees for the simplest health care services.Today, if you look at what a nurse or a GP are paid, while their pay is still far away from European standards, but it's getting higher and higher. So because of that, we have to increase the prices and so is the market doing. So it's not that we -- our costs are growing and locksmiths are not or [ empanelment ]. So the health insurance market today is undersupplied. So there is space for further price increase.Of course, there is competition, but you have 3 big market players. Maybe they are not increasing their margins, but they are gradually transferring the cost onto the price, the same as in the motor insurance market. Of course, there is always some inertia. So the staff prices have come up, and it takes time before they translate into the prices. And the same goes for health.For what you see, our prices are growing at, let's say, continued, let's say, long-term process to keep the margins and to keep the profitability of this portfolio as discussed and showed by Tomasz. So PZU Zycie alone, its value is made up by its portfolio, the -- its capacity to generate new business and also net asset value, as I've said. I sometimes say that for life insurance companies, in the U.K., you've seen cases for a company used to sell its portfolio, its chain, and Continental Europe, you usually don't have this type of transactions. So it's not only about reporting and [ IFRS ].These components can be split off and sold. They do have a separate market value. So if you look at the assets of the PZU Zycie company only, and if you look at similar companies in Continental Europe, I think that we have a discount, and you're saying the value of these assets is understated. And we are going to convince you that the value of Powszechny alone could be higher. Well, it's up to you to decide whether we would like to stress that it's worth focusing on certain things we do that might have an effect on the portfolio's value and our capability to generate new business.

[Unknown Analyst]

My question is about the costs because -- well, you did mention that you are closely following the costs and in which areas do you see the possibility to cut them?

[Unknown Executive]

Well, I think that there are a few areas where we can cut costs or actually that we will carefully look at maybe like this. So this would be in the back office. We will also cut costs by streamlining procedures and investing in those areas that will generate new business and growth. So we do have a really cross-sectoral approach that are also a process that we do not have to do in-house, but that can be outsourced.There are also a few business functions that are quite costly within the group. So we'll take a look at them, so leaving the banks aside, because they are more about creating the synergies and the business opportunities. So within the PZU Group, we have a few functions that are overlapping. I believe that we can operate in a more efficient manner.As Tomasz said, we want to attract new talents to our company. And how can we do that, by offering them an interesting stimulating and responsible work environment. So cost-cutting, streamlining processes and creating a dynamic and a team of experts will result in a very good mix, a mix that will help us to introduce improvements in terms of our pricing, in our operating model, et cetera, et cetera. So there is no one specific area that I have in mind. There's quite a few.Are there any other questions in the room? And therefore, I will read out a few questions that we have received online. One is on communication or actually our motor insurance. Like to what extent PZU will increase prices, if prices in the market will go up?So the overall combined ratio is 90%. The one in motor insurance is slightly different, quite far from a satisfactory level. So yes, this requires some action on our part, as I've already said. Basically, we need to find a way to generate growth and profitability. We do not want a short-term solution. We would like to have a fresh approach. There are a few segments that PZU still doesn't have mostly in digital channels. This might be a point of access to customers who are not interested in just a low price that wants to have other products like smooth service, smooth customer care and good additional services.We also know that there are a few companies that decided to go for a non-responsible pricing policy, and this never ends well. So we do not want to go down that road. We'll see what happens in the market as well.There is a question on the mergers and acquisitions. The question is from mBank Brokerage Office. How do you -- do you want to expand abroad? How do you see the future of your subsidiaries in Ukraine and in the Baltic states?Now you will have to bear with us. We will disclose any information on mergers and acquisitions in Q3, Q4 this year. Obviously, if we have some interesting offers that would look promising, then -- and would be beneficial for us, then we might examine them. So, when you want to enter other markets, you can do it through a merger and acquisition, but you can also use other ways of entering markets, for instance, through offering our products.For instance, we can enter a market by offering a product that has a very good sales process, and this is a big asset of the Polish insurance market. We also have a lot to do on the Polish market. So if we decided to expand, we need to have a clear idea on how we want to do it and what synergies we can offer because going abroad cannot be a way of escaping problems on the domestic market. So we're aware that we still have a lot to do on the Polish market. And well, we know that we do have operational excellence. We have good products. And this is something that we can take abroad.Regarding the Baltic states, we will have to -- and bear in mind that there are some differences in doing business. We need to integrate them with our procedures, and we're still working on it. And actually, our operations in the Baltic states or in Ukraine are a good testing ground for us and for our procedures, that is how can we integrate them with other systems, how do we handle reporting, et cetera. So if we do our homework and carry out our tests, we'll be even better prepared for mergers and acquisitions.Another question from HSBC and another bank. Are there -- so, is there a potential for growth in M&A on the Polish market? Well, the health insurance, health care market might be interesting. You may also want to reach out with new products to our Polish customers. We have a very strong position in group insurance. We have a lot of customers, but these are products that have relatively low sums insured and low premiums. So the individual products might be the way to go.This is for sure a segment where we can grow. We also have new people on the board who have experience in other organizations. So I will not further advertise our new staff members. We can also become more present in digital channels. Bancassurance is another segment where we can grow or e-commerce. For instance, we can also use the synergy of our partner who has good customer, good relationships, and this can be used for attracting new customers. So I believe that this is doable, but you just need to have the right team to make it happen.A question from mBank. Can you tell us more about your plan to simplify the structure? Well, I did mention this, but I do not want to go into details. I will answer maybe more strategically because we do have like functional response. We need -- basically, we need to make our organization less complex because now we have one person responsible for IT, another responsible for another segment, et cetera.However, our corporate health, TPL and life insurance products are completely different. So we need to look at them more using a P&L approach, not only like we then -- we need to organize people around individual business lines so that they feel responsibility, not just for sales but also for other aspects of the whole procedures, so pricing, service, et cetera.So we will try to reduce the complexity of individual business lines and bring people together around business units. So this is our line of thinking. Probably we will not manage to achieve everything in one go. Most likely, we'll start with those areas that are the easiest to transform because you do not overhaul -- you can't carry out a complete overhaul of the whole group just like that.After first month -- after my first month in PZU, we see that we are a management board that is ready to take on responsibility. And we are aware that many of our procedures are very bureaucratic, even as for a financial institution that we are. The risk that management -- that the management, the Board has to take is limited, but still the procedures are lengthy. Everything is double checked. And we do intuitively understand that our lengthy procedures actually account for some of our losses. We are unable to give you like an exact figure of the cost it generates, but we feel that they are just too time consuming, especially basing on my experience in another organization.Actually, people also were aware that things have to be simplified, but there was just no good moment to do this. There was no space to do this. So we want to give actually broader powers to our managers. And I believe that in doing so, we'll be able to achieve more using the same resources.Over the last month, we had a lot of meetings. We haven't met with everybody yet, but we really met with a large number of people. And I see a huge potential for internal entrepreneurship because PZU people really have agency in the sense that they can make things happen.Focusing on profit and loss will, I believe, release a lot of positive energy in the company because, well, one cannot enjoy influence that one has without taking responsibility. And one cannot take responsibility if they don't think that they do not have influence on what is happening. So I believe that a change in approach in that way will bring a lot of benefits for the company.There are 2 questions about the investment portfolio, HSBC. Can you tell us more about the strategy of allocating investments given the likelihood of decreasing interest rates? Our allocation strategy won't change much given the changes in our surrounding. This is because we are an insurance group. And unlike other market players, we have other -- we have different decision-making possibilities. This is related to our liabilities portfolio.Here, our asset portfolio is a natural collateral for liabilities. So if you take into account the regulations, we need to have a portfolio to cover our liabilities and it needs to be profitable, at least at a minimal level. So if it's not profitable, it would be problematic. And this portfolio needs to be made up of assets of a certain class. Otherwise, the risk will go up. There's a [ haircut ] related to the coverage and the requirements. Things might happen if these criteria are not met [indiscernible]. So the structure of different classes of assets in the portfolio won't change. That is what I'm trying to say.So we will not reallocate now 80% to shares because this would be a short-term idea. So if there is any volatility, and if we do that, it would put us in a very difficult situation and we would be at a loss in our insurance product profitability. We will be thinking about optimizing the portfolio and how to do it. But here, I would rather focus on growing through scale, maybe with lower profitability, but growing returns in absolute values to benefit the growing portfolio this way.Today, the portfolio for the 2 companies, that's over PLN 50 billion. So this would be my answer. Of course, we can move between certain limits when allocating the assets a bit, but it's not going to be a structural change. So as a new person in the company, I might say that the balance here is very important in the life insurance company. Let me tell you that our asset liability matching is very, very good. The moderation is very well matched. And we have very good profitability versus the technical grade and liabilities.So this is the margin that is in the portfolio. It's well hedged. The risk is there. You are experts in finance, so I'm not going to say anything that will surprise you. There is a slight risk because we have some liabilities that are over 10 or 20 years. So in modified, we are fully hedged. There is a slight risk of a deviation from the yield curve. And this, if happens, is usually short term and then goes back to normal, and we don't have any liquidity risks as banks, that someone would come and to take out their deposits.We manage assets in the long run. So this shows that the company is hedged. It has a nice portfolio with a nice yield. So now interest rates are starting to go down, and it's probably going to happen in Poland as well, though with a delay. So the extra money will be there, and this will be reflected in the P&L while depending on how we recognize this, whether you follow the local standards or the international financial reporting standards. But the portfolio is good. Tomasz mentioned 5.5%, and we are a company that invests in a very safe way. It's different than before. So I would expect a premium in our appraisers, and that's how I see it.Another question about the interest yield. Can it be related to a lower profitability of bonds? Unfortunately, I can't answer this question. Inflation-linked bonds because we are talking about this type of bonds here are only available for individual customers. We will answer in writing.And the last question is from mBank. Are you planning to buy the share in Pekao or from BFE? As we've already said, this will be announced in our strategy to avoid any speculations at this point for many reasons that we have already discussed.So these are all the questions I have received. We would like to have quality communication here with you, so we will be at your disposal in meetings. We can also invite other members of the Board if there is a specific issue that needs to be addressed. That's how we are going to do it so that the communication with the media is good. Thank you.[Statements in English on this transcript were spoken by an interpreter present on the live call.]