Powszechny Zaklad Ubezpieczen SA

WSE:PZU

Earnings Call Transcript 2022-Q2

[Tomasz Kulik, executive]

Good afternoon, everybody. I'd like to welcome you very cordially to the meeting to recap the PZU Group's Results in 2Q 2022. And as a matter of traditional approach as is the case in every quarter, today's meeting will be structured according to the following logic.

We'll kick off with the presentation of the main accomplishments of the PZU Group, then we'll recap business development. We'll talk a little bit about how -- what has transpired, where we've observed things in Q2, how that has affected and shaped and drove the financial results of the entire conglomerate.

And then we'll walk through the main KPIs in the strategy in order to see, at the end of Q2, how we see our abilities to discharge and achieve our long-term targets. The strategy was announced in a period of great volatility during the pandemic in Poland, and as a result, there was a lot of uncertainty.

Today, the macroeconomic environment and what's happening in services, both banking and insurance services, well, those are slightly different events from the ones that we had considered. That's why it's all the more important about whether and how we're going to be able to deliver on our long-term commitments.

So let's begin, of course, with a summary. Q2, as we recall, is a quarter that featured and focused on several phenomena. And they were linked to major challenges. We had to face those challenges.

Top of all, there was the war in Ukraine, the large amount of volatility on the financial markets, which meant that interest rates were on the rise. So inflation and cost growth were very high. And that means large entities, such as PZU, had to grapple with them.

It seems that we can venture to say that despite these challenges, we're wrapping up the quarter with a very robust result of PLN 722 million. And even though year-on-year, this represents a slightly negative result of 4.2%, we continue to be capable of delivering higher ROEs, return on equity.

And we have high profitability in insurance. And this is particularly impressive, having in mind the magnitude of the challenges in non-life and life business. Here, we see a return to the yields we had seen from prior to the pandemic when we've had excess mortality. We're happy with the banking segment performance, as well as in the main portfolio.

And so this is something that's helping or being helped by the higher interest rates. This means that we're able to renew investments as they mature and we're able to reinvest at much higher interest rates. So the turbulence we've observed in Q1 and Q2 of this year does not have such a major impact on us, and we have robust foundations, especially in the underwriting business. This gives us an opportunity to generate high return on equity.

If we look at business development and what happened with sales in this period, we're pleased with the results we've achieved in the non-life business, both in Poland and abroad. We've seen vibrant growth in Poland, in excess of 8%. We had 17% abroad.

This is something that pleases us, especially having in mind the turbulence on the financial markets and what's happened in terms of the outflow of assets from the markets in various financial markets and what happened in the movement of measurements.

I'm saying this because when we talk about the life business, as you know, this is not just protection business, but also investment contracts. We're having in mind the major fluctuation at which they're in jeopardy, where we saw slower growth and slower contributions to those accounts. And so the growth rate in life business, unfortunately, was negative. Well, this is because of investment contracts, especially the ones sold in the bancassurance channel.

As I mentioned, the non-life business, supported very good growth rate in terms of non-motor business. This is something that is pleasing. In Class 8, Class 9, we had strong growth, also in general TPL. And this meant that we're growing at a clip of nearly 10% year-on-year.

In terms of motor business, we can say that we have a very strong growth rate for motor and damage insurance, both in terms of the increase in interests, the sales of renewals, but also when we look at the average premium value. And this -- the motor TPL business is under pressure because of its growing size, we saw that the transaction values were lower.

In terms of a recap about how we wrap up Q2, we're closing it with higher sales, we have a very solid net result of PLN 722 million, as I mentioned. We have robust foundations. In terms of our underwriting business, the combined ratio in non-life business is below 88%, which is a very robust level despite what's been happening with motor business. If we look at life insurance, we're pleased by lower loss ratios in group and continued business.

In Q2, we recognized one nonrecurring event in terms of its size or magnitude, but it's not a nonrecurring event in terms of the nature of that business. So if that were eliminated, we had a profitability of 23.7%, which shows, in fact, that we've returned to high levels of profitability in the life business. And so the overall result on investing activity was good. We had a return in excess of 4.4%. What pleases us here is a very good interest result, interest income. We have strong returns.

When it comes to the real estate segment, we have a portfolio -- an equity portfolio that's performing well, particularly private equity, having in mind the good measurements or valuations of tech companies in this portfolio. And this is something that, despite the turbulence, has allowed us to generate high levels of yields.

At the same time, the costs have been under rigorous control and even there's some wage side pressure. And even though we've seen prices of energy, rents and -- rising, and as we are in the midst of relocating from one site to another site, and so some costs we have to recognize at a double level.

And even though in the bancassurance channel, we had a negative sales ratio, we, nevertheless, have been able to show very good cost effectiveness, where we have some 7.4% cost ratio. All of this has been done while we have a very strong capital position of 222%, which is substantially above the peer group, and once again, despite the overall market turbulence. So our rating at its prospects have been -- its outlook have been confirmed, affirmed by the S&P rating agency. So it's A- with a stable outlook.

If we look at our commitment to Ukraine, this is something we've talked about multiple times. We believe that this is something we should do. And even though the times are tough, we're providing support to those persons who are crossing the border. We're supporting our employees. This is a cost on one side, and that's quite obvious.

On the other side, this is something that we should do. So having in mind the nature of our activity and the fact that we strive to be an institution that is spouses' corporate responsibility, we're on the front in terms of everything that's happening with respect to this conflict, and we're helping all of those persons, parties who need that or expect that.

So now in terms of our consistent implementation of innovations. We frequently talk about products. We treat as breakthrough products. Here this time. I would, in particular, like to invoke this slide because it's the first time as such a level, the activities -- our activities in this area of insurance innovation. Well, we see that we received rewards and there's awards and broad appreciation. We received one golden award, and then we had the second-place award in the Efma Insurance Innovation.

Well, the first award was for a prevention program linked to skin cancer tests. And so these are things that are quite important following the summer period, and this should pique our interest to ensure that no changes have taken place with our skin, which could become malignant and have negative impacts on our health.

So we're pleased that here we're able and have been able to create a product, a certified product. This is something that's very important. We encourage everybody who have a skeptical approach with respect to these solutions to go ahead and check. We're talking about very important things here.

In turn, the second product, the second change, which was also a great importance to us. This is the Agro Lab. This is a product where we're able to react much more quickly, much more effectively and liquidate mass claims linked to crop insurance. And so this has an impact on the claims handling process and the precision with which we estimate losses.

So when we talk about PZU. We always talk about it in the context of the overall market, and that's something that we'll do again this time. So we'll kick off with a discussion of the changes on the marketplace, beginning with non-life insurance market.

As I mentioned previously, this is something that had significant growth, though declining, slightly under 10% year-on-year outside of non -- outside of motor. And so TPL insurance, we have the assistance as well.

If we look at the motor business, motor products, here we see a pretty big distinction between what was happening in motor own damage insurance. Where, on one hand, we had strong growth in terms of the numbers of policies, and then we also had a significant price movement. And this has given fruit in the form of premium expansion of nearly 11% year-on-year.

Well, of course, there's a bit of a shadow cast on all this by the motor TPL insurance, where despite greater its position in terms of the number of policies, unfortunately, the average price is actually constraining that growth. So we have negative growth of premiums in motor TPL over this period. This generally speaking, means that we have 4.4% growth across the motor business.

If we look at the motor business, motor market in Poland, we see in Q1 and Q2, we continue to observe price declines. At the same time, we've also observed frequencies, which have not returned to the levels seen prior to the pandemic. Many factors are contributing here.

So we've talked about one thing many times, that we have the hybrid activity we conduct. So we know that many people, many of us, are working in a mixed cycle where some of our work time we spent in the office and partially we work from home and home office, and this has contributed to the intensity of motor traffic or road traffic.

Especially in Q2, we have seen higher fuel prices in terms of what happened in Ukraine, and this has contributed to even greater constraints on the amount of road traffic. And this has been confirmed through the readings. So the number of traffic tickets, the number of accidents, so these are things that have a pretty big impact on whether or not we are to leave our cars at home and then utilize mass transport, or whether we're going to participate in road traffic and all.

And for this reason, we can say the motor insurance market -- and this is something that's been confirmed by the results of the overall sector in Poland based on the data published by the Polish FSA. So in Q1 -- well, the combined ratio for Q1 in motor insurance was 93%. That means that many insurers -- insurance undertakings even though -- well, this is something we've thought about many times. We're focused on the search for new business, building their portfolios and increasing their market shares, they were doing that to a greater extent than improving their profitability.

If we look at PZU and sales in this period of non-life business, we can say that the growth rate of all products is mixed. So 7.7% to 8% up in terms of non-motor. So we can say and see 3 things. Above all, the growth in corporate lines, so construction and assembly work. This is a result of new investment projects being started or continued. So we have pretty vibrant growth. Then we have individual business, so residential insurance for SMEs, we have the PZU Firma product. And this means that this has driven growth amongst the individual customers.

Of course, there's a bit of shadow cast by the non-life products sold through the bancassurance channel. These are riders to loan products, having in mind what's happening in banks, with basically lower sales of the main product. And that means we have lower sales in terms of those products, which are riders.

We've already discussed the motor business. We have strong growth of motor own damage. So it's more than 16% at PZU. And this is in terms of the numbers and the prices. That's a little bit worse in motor TPL. So it's a little under 1.5% in terms of the growth of exposure, while the prices have dipped.

So what's happened in this period in the life insurance business? Well, if we look at the regular premium market, so it's the bulk of everything. We can see that we have very strong growth in Class 1. So nearly 6% riders, more than 6%. All of this, unfortunately, is constrained by negative sales growth of unit-linked business. So in this section of the market, where we talk about regular premium products, so it's 3.2% is the overall mixed growth rate.

If we look at single premium products, after having in mind everything that's linked to the financial markets. So if we look at surrenders and lower contributions to accounts and lower purchases of investment contracts, where we have a decline of more than 70% in this period. And even though more riders are being sold, we have the mixed or blended growth rate is above -- minus 40%. And so PZU shares of 43.2%. PZU prepares a 43.2% growth earn on market share.

So we've grown in terms of group and individual continued business, so it's up PLN 26 million, despite what is seen as the adverse impact of the pandemic. Well, we've had it as part of our environment for more than 2 years. And we've had excess mortality. Here, we talked about the top loan impact in the gross written premium, what's happened there, because our portfolio has shrunk a bit there because of this excess mortality.

What we're pleased by is that despite all of these negative events, we've been able to grow in this segment. We're growing because of the main contracts, insurance contracts as well as the riders to group and individual business and individual continuation. And so 2 things merit attention here. Above all, we have the expanding portfolio of health insurance. And so in terms of our health insurance contracts, we have more than 2.5 million in-force health insurance contracts.

If we look at the other riders, we would draw your attention to riders for malignant cancer or malignant tumors. And if we look at the individual business, here we're dealing with 3 phenomena. The first one, which pleases us, is the higher sales of individual protection products in our own channels, proprietary channels.

Unfortunately, we have a decline in the sales of these products in the bancassurance channel. I mentioned that because these are sold as riders to the main products sold by banks. And so that means we have fewer riders as the main products are sold to a lesser degree. We're talking about here protection business.

And then we also have, which is a pretty big structural change in the market, is the lower level of sales and contributions to unit-linked product accounts year-on-year. The decline here is roughly PLN 150 million. This decline in terms of profitability does not really have a major negative impact on PZU, and we'll talk about that in a moment.

If we look at the growth of the health pillar, we continue to grow. Revenues up, sales are up by nearly 16% year-on-year. In terms of the number of contracts, 7.6% growth otherwise. And so we're selling additional health products to -- as riders to the main products. We're also building the subscription product under our propriety channel, and we're selling this by -- or through PZU Zdrowie. And so subscription contracts have a slightly different growth rate which makes it possible to run the business in a more flexible approach.

And that's particularly important when we talk about large inflationary growth in the sector. We pay particular attention to this. We truly strive to direct patients to our own medical centers. We're pleased to see that we have more and more contracts being served through our own medical centers because this impacts the cost base as well as the final cost per patient or the cost of a given medical procedure. This is something that's quite important, in terms of the fast-growing inflation.

We're also pleased by the ability to discharge our commitments, not only through personal visits to the doctor, but also using telemedicine or medical consultations remotely, and we're able to control then the cost of that slightly better.

If we look at assets under management, as we mentioned during the first half of the year, we saw more than PLN 20 billion of operating from the market. Despite that, we can say that we're in a situation in which PZU and the TFI PZU, the fund management company, we're basically the sole entity on the market that had a net positive sales result in every single month of the first half of the year.

So the new assets under management was nearly PLN 350 million Zdrowie, and this is something that pleases us greatly. Naturally, this is linked to the product mix, largely predicated on passive products and -- in -- well, pension security products for retirement, and so regular savings programs. So this is what is the PPK product or the PPE product, and this is something that makes us a section on this very challenging market in this period.

If we look at bancassurance and assurbanking banking, so our cooperation with banks and their cooperation with us, what I've mentioned already is that it was a very challenging market. We can see that the macroeconomic situation and the environment, these were are the major impact here. And unfortunately, it afforded us much fewer opportunities to sell life and non-life products. That's why we have negative growth rates, but this did not have a major impact on the final results.

So now as I speak about the financial results, let's talk about Q2. And so if we look at our ROE, which is the main indicator, we have very robust result, more than 18%. So this is a reason for us to be proud. Despite the negative factors I've mentioned, we can talk about sales. In the overall conglomerate, we have a higher growth rate year-on-year, quarter-on-quarter. So despite all of the negative factors, we've been growing on this market, especially if we look at investment contracts sold through the banking channel, where they had basically a negative growth rate.

So at the same time, claims and benefits paid on a net basis, are substantially lower, both quarter-on-quarter and year-on-year. And here, we're dealing with 3 types of events. The first and most important one, which has been confirmed by the profitability of insurance, we have a strong business foundation in terms of our insurance business in life and non-life business.

So in non-life, our combined ratio is 87.7%. If we look at the situation, especially in terms of motor business, this is a very high level of profitability. This is a very robust result, better than the one we saw in the corresponding period of Q2 of last year.

If we look at the margin in group and individual continued business, we see improvement over the corresponding period of last year. At the same time, and this is something that's noteworthy, we have a big decline in the loss ratio in this segment, and this is primarily driven by life risks, and then it was partially offset by health riders, hospital treatment, and critical illness riders. And so this is something that over the last 2 years of the pandemic, we can say that the traffic is such that people are more than willing now to utilize their medical bundles.

If we look at the other factors that contributed to this position in terms of net claims and benefits paid, and so we had a lower decline in provisions movement as opposed to the revenue. On investment projects, here, we can say that unfortunately, this was offset by higher provisions for the indexation of sums insured and individual continuation. And I'll speak to that subject in just a moment at greater length.

If we look at admin expenses, acquisition expenses, we continue to grow at a slightly higher pace than the premium growth rate. Despite that, we've been able to deliver a very high return on equity. If you look at the cost acquisition expenses, we have a shift in the channel mix. We have more -- a bigger opening to other channels, intermediaries, and we have higher costs of reaching customers there.

If we look at the admin expenses, as I mentioned previously, there's quite a bit of pressure in terms of energy carriers, rents, costs by nature have doubled. If we look at the head office, and basically, our relocation project, this is something where we'll have double costs. Perhaps we can frame this way.

On top of that, we have the situation in terms of what's happening in respect of salaries and wages. These were things contributing to admin expenses growing year-on-year. What we're pleased by is that while we have a big profitability in the main portfolio, we've been able to close Q2 with an operating result, compared to last year and the previous quarter, has grown substantially.

And if we adjust for banking activity, we have PLN 556 million net profit. So the one thing I would like to draw your attention to, in particular, is the profitability by operating segment. We've already talked about the non-life business, which year-on-year looks quite similar to the final profitability. Well, a combined ratio of under 88%. Well, this is something that's not been observed at present amongst our peer group. We have strong profitabilities in both segments in mass and corporate segments.

If we look at the life business, we also see growth in both segments. So these are things that please us. So today, the only element that really remains within the zone of great uncertainty, this is what's happening with respect to our business in Ukraine and what's going to happen with wartime activities. I mean, because this armed conflict has been in place for more than 6 months now.

If we look at profitability by the various segments. In motor business, the corporate, we have the combined ratio of 93%. Outside of motor business, it's some 80%. And so on I think that draws our attention, in particular, is what's happening with the market. We can see positive profitabilities in the motor insurance segments, so prices did not grow. As I mentioned, many of our competitors have focused rather on optimizing their sales position and reaching customers and gaining market share to a greater extent than thinking about the profitability of their position.

If we look at life insurance, we see lower mortality, which is in line with the falling level of mortality. We also have the indexation of sums insured in terms of major inflation uptick. So we have higher costs because of the utilization of health insurance. So this is something, as I mentioned previously, that offset the major declines in loss ratio in this segment. So op expenses have moved up a little bit to a small extent. And we also saw the provisions for unexpected risk were released or reversed for some PLN 25 million. So these were some phenomenon that took place in the group and individual continued business.

If we look at the absolute figures in the individual continued business, we can say the same profitabilities were posted as last year with lower level of sales. And this means that we have higher profitability measured in a relative basis. So as a percentage, if we look at the pandemic, what we've observed and what we note is there's a return to levels prior to COVID. I think that's how we can frame that. We look at the number of deaths per quarter. We can say that the number of deaths is reverting to the level of 105. This is a decrease of more than 20% with respect to Q2 of last year.

As a result, this is something that translates into what we see in the graph on the bottom. So this means that the loss ratio is down, and this is offset, to an extent, by the health products where hospital treatment, critical illnesses, surgical operations, these -- this is where we see the utilization growing as opposed to what we saw during the pandemic period.

If we look at the investment result, the most important information is that the investment result in the main portfolio is very robust. So we have a major growing share of interest income in terms of loans, and then we have growth in the real estate portfolio as well as in private equity.

With respect to tech companies, today, we are benefiting from rising market rates, especially with respect to variable coupon or floating coupon exposures or we talk about private credit. This means that we're able to grow as well as to roll historical tranches at substantially higher yields. This is something that pleases us.

Unfortunately, we had good yields on the portfolio. This was something that we had. Unfortunately, investors who are pursuing their own investment strategies with our intermediation, they were not able to copy or mirror our results. So in '22, the losses of PLN 490 million. Well, this means that we're closing this line with negative figures. But let me remind you, the result on investment products is neutral to the group in terms of the group's results.

If we look at cost effectiveness, we've maintained that at 7.4% growth year-on-year for the reasons we've mentioned previously. It's similar, so cost effectiveness is on par with what we saw in Q1. I won't reiterate this anymore. At the same time, we have a very robust balance sheet, a high solvency ratio. At the same time, our capital absorption is very similar in terms of running our operations. And this shows once again that we are an organization that, on one hand, is capable of monetizing the operations it conducts and we run it in such a way to be able to pay dividends from those operations.

The final strategy, this final slide in this presentation is dedicated to our key KPIs in the strategy. So sales are up. The growth is there despite the wind blowing on our face. So in life and the banking segments, we've seen the main challenges. We believe that we're on a good path to achieve our target and perhaps we might be able to exceed that target, especially. In terms of the group's net profit, here, today, we feel quite comfortable when it comes to this target or objective. Let me tell you that we said that target when there was a lot of uncertainty.

What we see today as we look outside, the macroeconomic environment, this is a totally different picture from the one we had in mind when we were preparing our strategy. So it's totally different from what we thought what happened in 2022. But despite that fact, we're on a very good trajectory towards achieving this target while maintaining a solvency ratio and being on a good path to achieve our targets in the health pillar. We have a growing contribution by the banking segment, and there's a lot of pressure in terms of assets under management.

What we're actually pleased by is the high return on equity. So we're going to wrap up another quarter where our ROE is above the strategic target. So we're at 18.1%. So this is the summary, the recap, of where we are on this trajectory to achieving our targets or delivering our targets in 2024.

I'd like to extend my thanks to everybody. And now I'd like to invite you to pose any questions you may have.

[Tomasz Kulik, executive]

So I see that we've received some questions, perhaps so I'll go back to the slide on the PZU Group's results.

So PZU SA's result is down 20% from the previous year. If we look at the losses generated by the banks, so the results in 2022, will probably be even lower year-on-year. If we think about losses in the banks in Q3, what can the group do to ensure that the dividend is going to be at an attractive level in 2023 because the 10-year dividend yield is 7.3%?

So there's quite a bit of many assumptions in this question. What I can say is how I see the situation. If we look at the room to pay a dividend, we'll have the stand-alone results of PZU SA, and we also have to have in mind the situation in place when we wrapped up 2021 in terms of how their result generated in 2021 was distributed, so what was paid out in the form of dividends and how much was put into capital, supplementary capital. So we followed the recommendation of KNF, of Polish FSA, how that should be shaped.

So having in mind how we did this, let me add my sense. So under the assumption that the Polish FSA's recommendation in terms of dividend payouts is going to be identical to the one we saw in 2021 in December of last year, then we would be capable of tapping into the funds that we put into supplementary capital.

There's a couple of hundred million there, so this implies a dividend of PLN 1.5 per share. That's the first part of my response, the conditional response. This is a response about what would happen if the recommendation of the regulator would be maintained the same way it looked in December of last year.

Of course, all of the other events that have occurred this year will be superimposed on that. The result of PZU SA in the first half of the year is PLN 550 million -- PLN 540 million. We'll have to have in mind what might happen in the second half of the year? What might happen? So we received the declared dividend from PZU SA. We know from -- it will be -- that's something we don't incorporate here yet because this is -- this reduces the capital in banks because we have is measured on an equity basis. And so the gap will be filled in Q3.

On top of that, I want to emphasize here very strongly, we have high in underwriting results, high profitability in the main portfolio, and the situation in the banking segment. Well, on one hand, this will be driven by the law of 14 July about Crowdfunding in vacations -- loan vacations. Banks have published estimates of what this will mean to them. So the PZU Group also published what it anticipates to happen in this respect. And we know this is not -- I guess, thinking if the estimates of the banks are shown to be true, this will mean a decline of another PLN 515 million -- PLN 514 million. So banks will have higher interest income as was the case in H1 and then in H2, plus we have the additional elements.

So we have the strong underwriting foundations and the results on insurance activity, plus we'll have the investment activity results. These things, taken together, will form a pretty attractive space for dividends. And if we have in mind the retained earnings, this is something that could afford or provide an attractive tool in terms of the dividend payout.

We see lots of changes in terms of the solvency ratio at the end of Q2 and so we have revaluations. Does that mean that the solvency ratio is not sensitive to changes in market rates?

Yes, that's what it means because we're pretty well matched, that means asset to liability match. It's hard to be matched in terms of duration, especially if we look at life insurance or in the insurance in non-life business. But having in mind our sensitivity to market rates in non-life business, the net impact, this is roughly PLN 1 million per point. In life insurance, this is PLN 300,000 per point -- percentage point. So this means that we're -- we have that gap pretty tightly closed.

So now this question has disappeared from my screen, but in terms of the match or the lack of sensitivity, we show the cost absorption of our business, which has remained steady at around PLN 11 billion. What makes the profitability of group insurance being at 12% as opposed to 20%, where we were a customer of that prior to the pandemic?

Well, the response to this question is one response. The profitability would have returned had it not been necessary to set up additional provisions for the indexation of sums insured in the old portfolio of group and continued business.

And the Q2 result was burdened with a cost of PLN 223 million [ PLN 1,000 ]. And this was all taken in a single quarter. And so this was a decline in the interest rate -- sorry, in the return margin by 11 percentage points. But if we look at the loss ratio that doesn't incorporate that, we can see that the loss ratio has fallen. And so above all, this is linked to the improvement of life risks.

Next question, along with the main portfolio, for the first time, it's below the reference rate. So in a higher interest rate environment, will you maintain your ambition of reporting results above the reference rates?

I can only respond to this in one way. Having the portfolio construed this way and with such dynamic growth of market rates, this is basically impossible in a short time period. We've mentioned this many times. The situation from our point of view is rather favorable because we don't have a headache like we used to have. What we should do with the PLN 3 billion in treasuries that were basically maturing that we bought some 10 years ago with a profitability of 5% to 6% today, we'll roll that with interest rates of 70 basis points. And that was a discussion we had a year ago.

Today, we're saying that we're able to purchase instruments in terms of their yields, long-term yields. They're able to replicate the maturing tranches, but in fact, we're able to give an additional contribution. So I assume that, having in mind the current environment we have, let's say, it's temporary and not permanent, maybe not at the end of this year but into the following year, we should observe some declines of 4% to 5% in terms of the reference rates. And at that point in time, we'll be able to say that this is our ambition and that we've matched, or we've used this time in order to match ourselves to the situation to the optimal extent.

Why has PZU decided not to roll bonds?

This question has an -- in -- an opinion or statement. Having in mind what happened in the first half of the year, hence, we had money dispute from the market, where more than PLN 20 billion left the market. And having in mind that these outflows were done, to a large extent, by asset managers through bond funds, treasuries, so we dealt with the following events. On one hand, we had outflow. As such, we also had corporate bond limits broken because the most liquid instrument was treasuries. And so we can say that corporate bonds had a rising share of the overall portfolio.

The third thing was that there were very high expectations on the part of potential or prospective investors. In terms of the cost or the revenue, that would be acceptable to them from the point of view of covering the gigantic uncertainty linked to the macroeconomic situation, and this would allow them to invest in those bonds. And despite the fact that we created an instrument at this time, which was a green rated instrument and so on and so forth, so it had all of those elements which our previous instrument or current instrument doesn't have in. We didn't roll it. We were not -- [indiscernible] nothing capable of doing anything other than buy out that exposure.

So on one hand, we're talking about capital, but we're also talking about cost effectiveness. When costs grow in such a way that don't justify anything, we're not talking about buying at all costs. That's all I can say to that. Today, we're not a leader in terms of new sales because we're not paying 100% for the distribution of insurance. That's not something you can do. We have to do things in a way that's justified from the point of view of capital equity and not just buy things on the market at a price that's not justified.

I'm sorry, these questions are jumping around on the screen. Why do you have a loss on the investment result in the Ukrainian company? Should we have losses persisting in subsequent quarters? What is the overall situation?

So we have losses on account of 2 things. And basically, this can be a single response because these are impairment losses. And basically, this is 50%-50%. So PLN 40 million in terms of receivables from customers premiums, another PLN 40 in terms of financial assets, and this gives the value of PLN 79 million. What's the capital position? Well it's a positive position. However, it's clear that this revaluation has an impact on the prices. It means it might be necessary to review the necessity to recapitalize these entities.

Everything depends on what's going to happen in the armed conflict, very difficult to prophesize, what's going to happen? We are interested in staying on this market. However, staying on this market in the current circumstances means that we had to recognize what we recognized in Q2.

In which line in the table on Slide 25 of the presentation is a decomposition?

I think -- will handle this question off-line. If we have a question about which line in the table, I think this is not really a practical question or a practical thing that I can respond to during this today's meeting.

[Unknown Analyst]

Reach the bottom of MTPL pricing cycle? Or should we expect more competition ahead?

[Tomasz Kulik, executive]

So I can respond to the question as follows. The competition on this market will be here if it's going to generate a potential to generate positive margins. That's the case in Q1. We're talking about the market data confirmed by the Polish FSA.

In PZU, that's the case in PZU in Q2. I don't know what our competitors will report. It's very difficult for me to reflect on this matter. In this situation, as I mentioned previously, we have observed greater interest.

In terms of sales efforts as opposed to those efforts, that would be focused on achieving profitability in this segment. From this point of view, my response could suggest -- but if nothing happens, we may continue to experience this situation. But the situation will morph over time, and I'll reflect on 2 things. The first one is the recommendation of the Polish FSA. In terms of claims handling for motor claims, what this should be implemented by the market as of 1 November of this year. And according to the estimates, this should translate into an increase of the cost per exposure by some 4 percentage points.

And as a result, this is something -- it will be difficult to get away from that or flee that. One can try to neutralize that depending on the goal and the tool. So you have more of the value chain in your own portfolio and we're able to control how we're able to recognize those costs.

And here, we're talking about things, the own network, external network, the process of claims handling. The cost makes a structure in terms of the methods of handling claims, claims handling, and that means we'll have different outcomes for different players. But the value I've mentioned, this 4% per exposure, this is the average for the marketplace.

We know what happens with averages. They're good, but not for a lot of things. But you have to analyze an individual situation -- the individual situation of every individual player. That's one thing.

The second thing, of course, we have the growing costs of repairs and claims handling. So the Polish zloty is depreciating. So all of this will have an impact on growing costs of motor claims.

So it seems to me that we're very close to the bottom as HSBC has inquired. But are we at the bottom or in a quarter from today, it would be very difficult for me to prophesize? Now certainly, the change I've mentioned in terms of claims handling process evolution. This is another element that will compel people to think about this aspect differently.

Why do you have such a big difference between the stand-alone results in Q1 and in the second quarter?

I understand you have in mind the stand-alone results of PZU SA. Well, this difference stands, to a large extent, from the following things. Above all, the dividend declared in Q2, where, in terms of cash, it didn't go through the P&L. So this is more than PLN 220 million. This is something that will be -- that will go through the P&L in Q3. That's the first part of the response.

The second part of the response is linked to the additional costs in the banking segment. On top of what happened in Q1, we're talking about the revaluation of debt instruments, and this went through the revaluation capital, and this is something that happened in Q2. We also had -- that's it, actually. So those are the major causes or drivers of the results between Q1 and Q2 being different.

How this is decomposed I'll happily talk about that peer-to-peer during meetings, and I can draw it out and explain that. So we would invite you to be in contact with us in that matter.

[Unknown Analyst]

Excluding impact of higher provision [Foreign Language]

[Tomasz Kulik, executive]

Something's happened here, question disappeared.

[Unknown Analyst]

Strong at 23.7%, how should we think about this going forward? Should we expect this to return to pre-pandemic margins levels of 20%?

[Tomasz Kulik, executive]

The response to this question is, yes. We had mentioned that in part, and we presented that in our presentation for Q2 that the higher profitability, the lower last year, this will be because of what we call the health debt. This is something we mentioned and saw in Q2, but this would be net of nonrecurring events or one-offs.

So we should gradually observe a return to what we saw prior to COVID. As I showed you, the mortality level in Poland, which is a proxy for the mortality in our portfolio, basically has revisited the pre-pandemic levels. And that means we should be capable of seeing profitabilities at a pre-pandemic level.

Are the data from [ EPIC ] and the price adjustment to the nature of penalty points and traffic tickets, could this improve the profitability of the motor segment?

Yes, that's the case. This is something that can happen without changing the average transaction price. Well, what will happen is that the price will be better matched to the quality of the risk.

To speak colloquially, those people whose driving traits and method of driving in a more nonchalant manner, will be reflected by the number of penalty points. And so they will have higher prices, while at the same time, the costs thereof in terms of repairs are higher for them. Well, those who drive with fewer penalty points, fewer traffic tickets, well, they will benefit from this evolution.

And so we could assume that paradoxically, we might have higher profitability without any transaction premium shift. Are you planning to pay a interim dividend from PZU Life?

No, there is no such plan as of today.

I'm sorry, but I'm battling with this device. What's the impact on business and the results of PZU of the new recommendation from Polish FSA in terms of claims handling for motor business? And when will we have the end of the double counting of cost for the relocation of the headquarters?

I have already responded to the first part of the question pretty precisely. That's my impression. In terms of when will complete the relocation process, we're in the process of relocating or moving. So probably, the presentation of the results for Q3, we can invite you to join us in our new headquarters. At that point in time, we'll be able to sum up that project and tell you how that project has finished up and what it means for us.

Is it possible that you'll have an additional dividends this year for PZU Life?

As I mentioned, we are not considering an extraordinary dividend at this time. But as we have mentioned, in the context of one of the previous questions, we also see some potential. We see dividend payout space for 2022, in 2023, for it to be a very attractive dividend without having to utilize the tool to which this question pertains. And we are potentially capable of achieving that effect which all shareholders are interested in obtaining.

And that was the last question we had in the Internet. So I'd like to thank you very cordially for your attendance and questions. I would invite you to be in contact in-person or file or phone us. Please be in contact with our IR department.

And I would now, once again, like to thank you very cordially. And I'll say until next time, so we hear each other once again.

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