Powszechny Zaklad Ubezpieczen SA
WSE:PZU
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
39.15
55.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches PLN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Earnings Call Analysis
Q2-2024 Analysis
Powszechny Zaklad Ubezpieczen SA
Good morning, ladies and gentlemen. This earnings call presents an overview of PZU's results for the first half and Q2 of 2024. The key figures highlight a robust performance with revenues from insurance sales at over PLN 14.3 billion, growing approximately 10% from last year. Profitability was also significant, with a net profit reaching PLN 2.4 billion and a return on equity exceeding 17%. Notably, the company's capital position remains very strong at almost 230%.
In the upcoming weeks, PZU is set to pay a dividend of PLN 4.34 per share, yielding 9%. This performance is quite competitive compared to peers, reflecting the company's solid financial health and shareholder-friendly policies. Internally, the payout affirms the company's strong capital position and commitment to delivering value to its shareholders.
Despite a strong showing, results for Q2 were slightly lower than the previous year. Key factors included adverse weather impacting crop and non-life insurance, leading to additional costs of approximately PLN 200 million. Additionally, motor insurance saw increased claim frequency and costs. However, investment income was healthy at PLN 1.23 billion, slightly up from last year, with an operating margin improving to 22.1%.
On a positive note, the non-motor insurance segment showed dynamic growth, particularly in the corporate sector which outperformed the market. Life insurance margins remained robust, and there was significant expansion in health insurance – an area with considerable future growth potential. The company has achieved a 16% year-over-year increase in non-motor insurance sales driven by product enhancements and pricing strategies.
PZU's strong financial standing has been validated by high ratings and solvency ratios among the best in Europe. However, the adverse weather events in the second quarter underscored the vulnerability to external environmental factors. The combined ratio, a key indicator of profitability excluding investment income, was at 92.5%, with over 2 percentage points attributed to weather-related losses.
The company is actively working on several fronts to enhance management capabilities and operational efficiencies. This includes hiring experienced professionals and initiating restructuring to speed up decision-making processes. Upcoming pilot projects aim to further decentralize operations, giving teams more control over financial outcomes.
PZU's life insurance side saw improved revenue and profitability, driven by growing sales and enhancements in contractual service margins. The profit margin here stood at over 26% for Q2. Meanwhile, health insurance, although still developing, shows promising signs of closing the gap with market leaders.
In keeping with industry trends, PZU is incorporating AI to enhance risk assessment and pricing strategies, thereby improving competitive positioning. Additionally, digitization initiatives at affiliated banks demonstrate the company's commitment to technological advancements, aiming for improved operational efficiency and customer satisfaction.
PZU remains well-positioned to continue its robust performance despite external challenges. Strengthening management, leveraging technology, and strategic market moves are expected to bolster future growth. The company anticipates fulfilling its strategic objectives by the year-end, maintaining stability in dividend policies, and aiming for enhanced shareholder value through cautious navigation of market dynamics.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. Today, we'll discuss the results of PZU the first half of the year and the Q2 of 2024. The [ Chair ] will be Artur Olech, the CEO of PZU SA; Jaroslaw Mastalerz, CEO of PZU Zycie; and Tomasz Kulik, CFO of the PZU Group.
Good morning, ladies and gentlemen. Welcome to this meeting we just hold on a regular basis. Now the Q2 is already over so we will show you the results. And also we will discuss the results for the whole time of 6 months. So this is the second meeting, with this makeup of leadership, and this is already after the procedure of the regulator. We are a bit stressed, of course, but hopefully, we will be able to live up to the challenge.
To begin with, let me mention the most important figures. So these are the most important figures considering the results. Revenues on the sales of insurance, this is over PLN 14.3 billion, which is an increase of about 10%, PLN 1.3 billion over the results from last year. Profitability is also very good, PLN 2.4 billion. So this clearly shows that return on equity is way beyond 17%. Banks have contributed large to this result, because they have benefited from higher interest rates, but also from the facts that operating activity has increased. So their performance has increased and that the banks have already published their results.
Capital position is strong. It's almost 230%. But if you take -- this is the group, but if you take the stand-alone position, this is almost 240%. This concerns the dividend. And as you know, this is way better than our peers. In their case, it's about 200% -- around 200%. So this group has a very strong capital outstanding.
Now the dividend, which we will pay in the upcoming weeks, PLN 4.34, the yield is 9%, which also means that our performance is quite good compared to our peers.
Now let's discuss the results and the makeup of the performance. So there are some good points, some challenges as well. I have already mentioned the banks. So the result is slightly lower than last year, and this is mainly because of the insurance activity and because of what happened in Q2. So the weather conditions, which mainly had an impact on crop insurance and also non-life insurance, because in 2023 in the same period of time, they didn't have that much impact these events.
Also motor insurance has affected the situation. But mainly, as I already said, this is because of the weather conditions and the motor insurance pillar amounts to about a 1/3 of the impact. And there is a market trend, which is now visible about the motor insurance. This is not yet reflected in the results, because it usually takes time. So it won't appear here until the end of the year, I think.
But if you take this out, the result would be pretty similar. To last year, we have a very good result in investment portfolio of PLN 1.213 billion (sic) [ PLN 1.23 billion, ] which compares to PLN 1.21 billion last year and a high operating margin, which was 22.1%. It's better than last year. And the combined ratio here is visible, you can see it on the slide, it's 92.5%. But as you can see over 2 percentage points are due to the weather events, as I've said, and also the situation in the motor insurance pillar.
There are also things you have probably realized, which happened after our Q1 presentation that the strong standing of the company has been reassured, and this can be seen in our rating that it's now positive. This also has happened in Q2. So please bear that in mind.
And the solvency ratio is one of the highest among our European peers, because as I've said -- I've already told you, the average is around 213% or slightly over 210%. So the Group is doing very good in this aspect. We have a very good capital position and good financial position.
Now a few words about what we have already achieved in this quarter. This is a very sound result and the sales have gone up. So this is largely due to non-motor insurance, who's important -- who's meaning has been growing, mainly in the Corporate segment. Here we are doing better than the market. The margin is very good, especially in life insurance, Jaroslaw will discuss this later. And also, there is a dynamic growth grade in the health insurance, although we are far from our ambitions yet. And this is what we consider as an aspect to work and with potential to grow. But the figures are positive, and we think that we will be able to strengthen our position and catch up with other companies which are slightly ahead of us in these terms.
Now, strengthening management skills. We have gone through many changes as we know, we have replaced many employees. Some people have come back in a spectacular way after a longer break. So I'm very happy and also happy with the news that was released yesterday, that Mr. Tomek [indiscernible] has won the competition, because he has very strong skills and knowhow about claim handling, which accounts for 70% of the balance sheet and value generation and our core line of business. He had a strong background in PZU before, but then he got a lot of experience outside of the group. He comes back now. He used to sit on the management. So it's a very good news, both -- it's very good news both for the market but also for this organization. We are able to attract the best talents.
Another hot issue is a new operational model we are working on. And we are just about to start implementing it. I think that next month, already we will start first pilot projects. We will be implementing business units. So we will rearrange certain lines of business. We will reorganize customers, products, and process to speedup the decision-making process, so that people internally also have more control over the margin and the P&L. So this is what we are planning to do.
And we are planning to implement the model till the end of the year. This will be a revolution of the processes in terms of the approach, the mindset. This is what we like to do.
Another important thing, which is, selecting people to -- to be post at the banks and we oversee two banks, which are important for the group, but also for the Polish economy in the Polish banking sector. It's been a lot of hard work, but we have managed. We have succeeded in bringing very experienced people to these organizations. They have a lot of seniority and they are very experienced managers of a lot of expertise with a very strong track record.
And digitization. I mean, both banks here. And this has been very well received by the markets. I mean, the people who we have hired. Because we, [indiscernible] was very important person in this process, because he's in charge of the Supervisory Board of the Bank. This is very important for building relations, that creating the right ecosystem of collaboration with the banks.
We are now working on the strategy very hard. It will certainly include the operational model, the collaboration of the banks. All of these will be reflected in our strategy. So the decisions about which way we want to head will be included in the strategy, and we are now at a very advanced stage of drafting the strategy. We would like to strengthen the core business. We have already realized that there are certain market trends, which are not yet visible in the results. I mean, the motor insurance trends will try to make the most of the trends, especially if you think about our market share and the pricing.
And also, importantly, all the synergies in the group, cost synergies, and I mean, insurance, mostly, here, but also some business aspects, collaboration, assure banking, bancassurance collaboration models. We have a new setting now, and I think that is going to be a good incentive to make even more of this relation in the upcoming years.
So before I finish, let me tell you a few words about non-life -- non-motor, further. So you can see the gross written premium, there is a growth of almost 15%, especially, if you focus on non-motor. We are way better than the market is doing, 20%. We think, this is 1.6x better than our peers.
Last year, we had high inflation and prices were flat. So this was a difficult situation. But sales effectiveness is something which is totally on us. It doesn't -- it's not on the market. So we can see that in motor insurance and PPL, over 10%. This is an increase in price, but in MOD, so what has gone up is, both the premium, but also the number of riders, which means that we're able to sell additional non-obligatory riders to our customers, which is also, I think, very important.
I will give the floor to Jaroslaw now.
Yes. Thank you. Thank you for coming, ladies and gentlemen, and thank you for giving me the floor. PZU Zycie is a stable part of our business. So on the one hand, we can't see any spectacular growth, as we might see it in bancassurance, for example, or other areas of health.
For example, however looking at our market, spending every percentage matters, and I am convinced that growth in a situation where your position is strong, already, especially the group insurance is a success already, because there are many players in the world as big as ours and they have a problem defending their position, because the competition is very strong.
Since 2022, we've been growing again after many years in which to say it simply, the premium was rather stagnant. So this is due to a good result in selling health insurance and group insurance. These were the two main drivers of our growth in this period and we do believe that this growth is not just momentary after the year 2023. The year 2024 has shown that we can continue on the growth trajectory, especially for our new product.
So as I said, [indiscernible] premiums according to the Polish standards, and also looking at the -- if you look at [ IFRS, ] reporting will be different, because then there is short-term and one-off, then it looks different, but this is the format we report in and this ensures comparability between us and the competitors.
And the fluctuation is mainly due to one-off investment projects, positioned relatively stable and we continue growing in protection products in the periodic investment products, our strategy for individual insurance, this has been traditionally conservative and the most important driver was the fact, that we are prepared to sacrifice some growth if we see that we can't deliver value to our customer, because it's always been to believe of percent or it was [indiscernible].
We affirmed that the many years in this segment, it is transparency and the value for the customer that matters most. So in some segments, I'm not saying that others don't offer transparent products. But our position is that we want to remain very, very conservative. Our new strategy will be communicated soon. So, please, be patient, we will release it soon. We do have some ideas, how we can grow in the Life Insurance segment. But bearing in mind, how I see the sector, we are dividend-based not growth forecast. And in this segment, we don't see dividends very soon, but we have to grow as an organization in order to ensure dividend in the future in the long term.
If we were dividend focused company, we would be able to ensure in a high return, but in that short term, but not necessarily a long-term perspective. The President gave me the remote, I didn't realize. Yes, [indiscernible], well, here we report based on KPIs to show you, which factors contribute to our growth. Of course, you can see the revenue expressed in million, it's not the -- in the group insurance, it is the major contributor and the main driver that is the health insurance premium is PLN 1 billion -- almost PLN 1 billion, is the current amount of the revenue. We are growing at that fast rate. We are getting closer to the market. We need, of course, there is still a gap to be covered, not sure how big the gap is. I'm talking about [ group's net, ] obviously, but the reports published relatively late in the year. So we can only compare our position to those companies that offer the results, in timely manner.
But looking at the trends, we are closing that gap between us and the market leader. And major part of our revenue in health, it comes from subscriptions, but also one-off services. So it also confirms the quality of that by our organization, not only do they handle losses covered by insurance packages we offer, but there are also customers prepared to go to these medical centers privately and they pay all the consultations.
The number of telemedicine services after the COVID-related peak has been decreasing. What we've been expecting was a continuous growth, because it seems that everyone has gotten used to telemedicine. However, it seems that as a society, we still need some time to absorb and adapt to this innovative solution that replaces personal visit to a doctor's office. But the number of online visit has been growing our service channels. They foster this development without necessity to visit medical centers personally or they contact the hotline.
Now written premium from bancassurance. We are especially proud about two things here. The first one is a clear growth in non-life insurance. Of course, we depend on normal volumes sold by our partner banks, both of them, because the insurance offered by them is an embedded insurance.
So our success is in a way derived from the success of the banks and their credit or their loan activities. Despite certain anxiety in connection with trending regulations, we haven't seen any decrease in the revenue and the premiums implement happened, actually growing also very proud as regards to investment insurance and life insurance. This is the light blue part. These are stand-alone products and they show that we are successful in convincing employees of customer, current employees or employees of the centers, that this is a valuable product and it's good to offer it to the customers, because it's important after significant crisis in the last decade, DFI has grown stronger. However, it hasn't yet gained a strong position in regular savings.
But the market is building, maybe it's not as clear as in individual insurance, but it's more visible in the banking channel. A significant growth of PLN 94 million in premiums more than in the previous quarter. And year-on-year, we can also see about PLN 1 million more this year.
Assets under management and the PZU Group companies, as you can see, we've reported a strong growth of PTE, TFIs, well with 33.5%, so it is part of a PZU SA is growing very nicely. And if we combine it and look at overall result, PZU and TFI. PZU has now become the second biggest player competing with Pekao [ and PTE. ] We are also very proud about Alior Bank. It hasn't been a big operation, but it's been working very nicely. It's filled niche and has generated a satisfactory result.
Our new product initiatives at PZU and PZU Zycie, I will talk very briefly about those covered by PZU Zycie. And then I will hand over to the President. So we have good new initiatives PZU perspective and [indiscernible] life insurance initiative. It's a constant initiative aimed at improving transparency and convenience for the customer who are interested in individual insurance as regards group insurance.
We keep looking at enhancing the onboarding process, the product we are offering, so called, [ PE ] product. So the employee pays. So not only do we have to convince the company, the corporation, but also its employees, and then, when they stop working in that company, we have to convince them to continue. So it's quite complicated compared to those programs where the premiums are paid by the employer only.
Thank you. Tomasz, would you like to continue?
Yes. As regards, non-life products, in this quarter, the cargo platform and platform for corporate customers has been developed for a long time. Now, we have been trying to enroll customers in the sales and service and loss handling process, the same applies with this platform independent insurance of transport, property insurance policies, is one example. Also a simplified risk assessment process. The platform is available 24/7. Who are interested, please have a look at the website at mojafirma.pzu.pl.
As regards the mass segment, the initiative is called PZU Gospodarstwo Rolne Plus. It's voluntary insurance for agricultural buildings, as an addition to the mandatory insurance. In addition, we insure against the failure of technical equipment and power generators and there we offer additional compensation for damages caused by gross negligence. And what we've been talking more and more about the fact that now we are core processes.
We start to include some AI-based components, so that we can work even faster, even more efficiently. What's important to note is the fact that, thanks to AI support. Our pricing processes for insurance that have been developed with the support of AI is even better at adjusted in terms of the risk profile price, which further improves our competitive edge.
You know ladies and gentlemen, how important it is to reflect the risk through the price parameters. But we are not working on a prototype scale, but it's a large scale operation. And PLN 9 billion in value, this is the worth of losses that was processed using AI support, similarly to corporate clients. Also in this case, we try to involve our customers in our processes so that they can have a sense of urgency, it's important for customers. We see it on a daily basis, not only do they become more loyal to the company, but they are also more satisfied with the processes.
If the customer feels they can handle their loss independently, their level of satisfaction grows. On the other hand, we are still active in the startup acceleration, business acceleration processes. External third-partner technology and our scale of operations together through acceleration, we can further build our competitive advantage, both in terms of cost reduction and increase of revenues between Tomasz moves on to discuss financial data and before we give you the opportunity to ask questions, there is something I would like to add. In the second quarter, we continued a number of products that started earlier, but I think it only shows how much knowledge and with great solutions have been developed internally by the company. I'm talking about products.
Encouraging customers to buy insurance. But also AI support that increases the speed of our operations, and we can already see positive effects of these projects. What you haven't seen because we couldn't see it yet. That's what we are planning to do in Q3. You want to be market dealer, not in terms of any in terms of market share but we want to set standards on the market and we want to make sure that the market operates at high quality.
So we have joined a UFT database, anti-fraud database. So we have a major part of the market, 30%. So we don't share data with others, but the market doesn't share data with us. Now knowing that we can work well with data and we are sure we can, if we want to change it. We make a decision and decided to introduce standards that are obvious in the banking sector. And we want to share that data, because it has nothing to do with competition. It's important.
I think, we have a lot to contribute to the market, not only will others benefit from our data, but also will we. And we believe that in this way, the overall quality of the market and our business will grow. So that's one, the number one.
The number 2 is a lot of internal innovation, startup companies, we have projects with. Startup companies tend to be more agile in the markets. So we cooperate with them. We will try to do it more bravely. The future, we have already have some solutions that we will launch within our ecosystem in those areas where it can prove useful. With those clients where it makes sense, of course, you have to be reasonable about it, but we will be introducing such solutions. We will also use our capital pending in the west. But I know it's a different topic.
But we believe that thanks to our strong standing. These initiatives will have a better chance of functioning well. Of course, it will be beneficial for situation of those startup companies. With our capital support, they will be able to scale up that innovative solutions. So this is a change we are going to see. I'm only signaling it, and you will receive more details when we present our strategy. But it's important to know that we have joined the UFT anti-fraud database. This is a very recent development.
Thank you very much. Now let's summarize the results briefly and then we'll discuss every segment in detail. Good news. So, as we all have already said, the growth rate of the revenue has gone up. I mean, not with the written premium but gross revenue on insurance. So this is a new standard, and there's year-to-year growth of around 10%, which is -- thanks to the very good beginning of this year and also a good growth right at the end of last year.
Property insurance is worth noting here, a double-digit growth and over 10% and even more in the corporate segment. Here we have over 70% of growth year-to-year. Individual protection insurance almost 14%. So a bit slower here but group and individually continue the large scale 6%. So it all translates into a double-digit growth of the gross revenue on insurance.
Property insurance, non-life insurance, it's increasing its contribution and its revenue and here -- we have to share the risk of reinsurance companies. Therefore the reinsurance costs are growing. As a consequence the gross revenue after reinsurance is also growing, but not at the same rate. So at the same time, we have a growing portfolio with the reinsurance, but also at the same time, there is a growth in actual cost of insurance.
Now the cost of insurance. So let me mention two main elements here in Q2. First, claims in the mass and corporate segment of non-motor insurance, you will certainly remember April and June. There were quite a lot of mass events such as weather, downpours, hailstorms, strong winds. So because of that, in Q2, we have over PLN 200 million of additional costs, claims and benefits paid out in these two segments.
So this is the non-motor segment. Now motor insurance. As we know, there are challenges we have to face. In Q2, the results are similar to Q1. The results are not getting worse anymore, but if you look at the claims ratio, especially in mass products and MTPL, the claim ratio has gone down 2 percent points compared to Q1.
Now acquisition and administration costs. Usually in this time of the year, they have a lower growth rate. So as a rule, their share in the combined ratio is lower. So they do have a positive contribution to the margin in both segments, both the mass and corporate segment.
Unfortunately, because of the nature of the standard and because of the higher claims and benefits, we have had to recognize the national loss component, whose increase year-to-year is up above PLN 150 million. And this concerns both motor and non-motor.
Now net financial income. So that allocation performance and others. So this concerns portfolios that are to secure our insurance liabilities. So Q2 ends with the result of PLN 714 million, which is slightly worse than Q1. So because of the reasons I've already discussed, this is worse than Q2 last year. Last year, the performance was quite good in non-motor, especially. And this year has been subject to greater pressure.
So now, let's look at the bank segment and its contribution. This year, the banking segment is under a strong pressure because of the mortgage memorandum. And the result here is almost [ PLN 1 billion -- PLN 2 billion, ] which is similar than Q1, but of slightly less, I've already discussed the reasons. So a slightly worse than Q2 last year.
Now let's talk about each segment. First, the mass segment. We have witnessed huge growth here, especially in non-motor. With a huge contribution of the sales of PZU housing products. This is a new refreshed solution, because it promotes additional riders and covers. They are quoted in a degressive model, which may not show, encourages customers to take out to full and comprehensive insurance. Also, if you take the contribution of PZU firma and SMEs, this gave us a 16% growth year-to-year. There is also a strong position in MOD, a double-digit growth rate to 12%. Now MTPL has been flat. And the growth is largely, thanks to price.
There has been a sound growth in revenues, but also in costs of insurance as well, as we have already told you. Because there is a slower release of the excess of claimed results from last year, but also we have higher liabilities for incurred losses, both in motor and non-motor insurance.
In non-motor, we have had the weather events and this has been estimated to be worth about PLN 200 million now, in this segment. The share of cost is going down. So this is good news. I mean distribution and administration costs, now this is a good sign. And especially if you take into account the inflation rate, prices have been growing up and so have salaries.
So as a result, the operational result has gone down. Now another important element we would like to discuss, the evolution of our core products in non-life, which is motor insurance. The price and claim frequency. As you can see, there is a good news. If you take MOD but also MTPL, for a long time now, the price has been going up. And Q2 is over 7%. Unfortunately, it's not correlated with claim inflation. Because the claim inflation rate is mainly because of the increase in claim frequency.
Overall, we are using hybrid solutions which translates into the additional costs we have already told you about. So the traffic is growing again, as we have realized, but also there is a strong correlation between the weather situation and frequency of claim. So that the worse the weather, the more claims there are. And the more changeable the weather, the more claims and insurance events take place. Maybe it's the same as in non-motor insurance. Maybe we should also quote the weather aspect, so which have an influence on the price.
So the nature of this business is the following. If there's a trend, there's a certain delay before you notice it over time. But there are some elements that are slightly better than a few months ago, although not yet reflected in the results.
Now in the corporate segment, we have had a very dynamic growth over 17% on insurance revenue, largely non-motor and also -- if you take depreciation and the new standards, so it gives you the result, as you can see in the chart. MOD here, slightly worse, but 7% and MTPL, as you can see, I mean, TPL, loan growth here. So this is not a good time for growth rates in this segment.
The same as in the mass insurance segment, the price of services have been growing. The growth rate of prices that is higher than -- but also costs are growing, which translates into a drop in the operating revenue. But certainly, I have to say that you can't compare between Q2 this year and last year. Last year in Q2 the combined ratio in the non-motor insurance was very, very low, less than 30%. This was because of a one-off event.
We released a reserve without payment in a contract guarantee, which had an impact of over PLN 60 million. And this year, there has been no such event, which clearly impacts the results. Or we have to say that what we are seeing today in non-motor is certainly more representative and more reliable in long-term than what you saw last year. Now group and individually continued insurance, you have a 6% growth, but the share of the contractual margin release is going down and also, if you take the revenue for SCR, especially, they have risks. These are the challenges. so these are the challenges today in life insurance.
But also, there has been a huge increase in terms of profitability, meaning the profitability of protection risks, especially the underlying risk -- the basic risk, which is the death rate, that the rate is going down for the whole population, not only for the portfolio of this company.
The costs here of insurance services are growing. I think, we already observed at 2.3%, which has a baring on the operating result and the contribution of the segment, which has gone up. This is our core product and the margin is over 26% in Q2.
Now let me discuss the pandemic and the claims ratio. As you can see, we are now in a very specific situation, because this is yet another quarter when the debt rate is going down compared to the pre-COVID time, 2019. This is important. It matters because it has an effect on our results here and now. It has an impact on our performance, but also on our approach to pricing, because we clearly live longer now. So the levels are lower than last year and the benchmark, which is 2019, which translates into the pricing of the product. But as I've already mentioned, healthcare products continue to be a challenge. The take-up rate is high. So it has a negative effect on the results in this segment, because the claim ratio has gone up by 1.2 percent points. And the debt risk had a positive effect, which has set off the negative aspect overall, is 2.5% at some point.
As regards individual production insurance. Well, first and foremost, we would like to draw our attention to a relatively strong increase in the release of CSM year-on-year, and an increase of 15%, as regards CSM. This is a direct effect of development of improved profitability in the banking channel and a growing increase of the premium for covering the cost of claim settlement and service as regards, trends in the group and continuous -- individual continue to well. We've seen improved revenue and improved contribution of this segment to the consolidated result.
Now a very important bit of information from life perspective, growing sales, additional sale to the existing portfolio translates into increase of the contractual service margin, both in the group and individually continued and individual protection insurance, which is very good news in the context of the scale of the phenomenon we are dealing with and the portfolio we are dealing with. We know that it is a very mature portfolio, especially on group insurance and individually continued insurance side.
We are working very hard on a sort of a rejuvenation of this portfolio, so that not only can we maintain, may keep it strong, but also rebuild the value that's reflected in the reports from the perspective of the growing CSM. And so our investment results here, some important information. Nothing is changing in terms of the portfolio structure. It remains very safe based on debt instrument. This is the right moment in time for such a structure. It will best help us to respond to the risks we are dealing with. It's a mix of -- on the relevant strategies and relevant assets, profitability at the level of 4.6% in Q2.
The interest rate income result is growing better result from valuation of debt instruments well, some improvements in terms of private equity and share strategy. This is what's been performing better year-on-year in Q2, especially as a result of technology-related funds. But what was pulling us down slightly well, lower real estate portfolio results due to lower valuation mainly in the office segment. So it was a minus [ PLN 72 million. ]
And the other factor was negative impact of other items such as a swap points, for example, lower income from swap point of currency hedging instruments. In Q2, in other items part, we showed a stronger effect of the reversal of foreign exchange temporary differences relating to the valuation of real estate in the first quarter.
Now as for solvency, we continue seeing very high results, solvency results, but to year-end 2023, we see growing capital consumption, especially the base capital index. So this is mainly due to higher exposure to catastrophe risks and changes in the portfolio in order to adjust the exposure. And we strengthened the non-motor product in the corporate segment.
Now where are we 6 months, because before the end of the 2021, 2024 strategy, where are we in individual KPIs? Gross insurance revenue, 51% of implementation with almost 10% year-on-year growth has still a revenue increase at the level of -- at the level that exceeded 21%. The high solvency level and with a net profit, despite the fact that almost 57% -- we read already almost 57% of the target. The strategy was published in a period that was quite changeable and with a high degree of certainty, and it affected our estimates back then.
Today, it's different. So it seems that until year-end, we will be able to show a positive development. As at the end of the year, we will be able to see that we fulfill our obligation. As regards to contribution of the banking sector is also significantly higher than what we used to expect when writing the strategy. So the banking sector is now contributing stronger to the achievement of our KPIs.
Assets under management already now above the already ambitious target level of PLN 60 billion assets under management with all in equity. The profitability achieved adjusted by the factors. We have no influence on, for example, interest rates and other rates that affect the valuation of insurance obligations and then not through OCI, the level of 17.4 percentage points.
And -- this is where I would like to pause and hand over to the President.
Ladies and gentlemen, in the summary, before we give you a chance to ask questions, I would like to address several points. Well, firstly, the second quarter was significant in terms of the weather. In fact, the impact of weather was much stronger than the previous year. Probably, this is why the performance was lower than in the comparable period last year. But in the areas where we have a strong influence, for example, sales, profitability, profitability of non-motor insurance. Also, looking at the cost factor, we've already seen signs of improvement. So this is something I would like to emphasize.
Secondly, a certain problem of the market and of our core business, motor insurance. In this segment, we've seen a positive market trend, that performance terms of more than 10% growth in the motor TPL. This is something that can make us optimistic, because it shows that the case the market growth, which grew on average by 7% in premiums, our results are very good. It's also important to note that we are building a strong foundation. For the next year, it's also part of our strategy. Certain personnel changes in the insurance segment, some collaboration in insurance, but also in banking, because banks do contribute strongly to our performance. The fact that we have attracted very strong and good managers to work in these areas means that we will be able to generate a very positive synergetic effect and a very positive results for the shareholders of the PZU SA.
Thank you very much.
Ladies and gentlemen, are there any questions? Are there any questions in the room?
My name is [indiscernible] Santander Bank. I have three questions. So at which stage are you considering the role of banks in PZU strategy? If I remember correctly from last conference, you said that this model of cooperation between PZU and banks, it's a non-standard solution. And today, you talk about synergies. Would you like to comment on that?
As I said, well, the ultimate direction of our development in this regard will be published in the strategy. So I can't answer it at this point, but time we have spent together in the last 2 or 3 months gave us a chance to really talk to each other.
First, internally, to look at the plans and ideas that was that we've gathered some experience, some knowledge about the process, and we have really done our job in this regard. But we have also had dozens of meetings with different people, with our shareholders, with people who observe us on the market. And we listen. We listen to their opinions because, of course, our shareholders also have an opinion about that. So what we will present to you in the strategy will be the best solution that will lead to optimizing shareholder value for PZU SA, while at the same time, keeping the value of our assets strong. And I think that this is the main guideline that we will follow.
So we will be guided by purely economic, purely business-related factors. But I just want to add that our strategy will be about showing you our -- the direction of our strategic decisions. The strategy itself also prepares a foundation for implementing our plans. Many things have been happening in terms of our banking strategy. But in order to implement a strategy, you have to have the right people to do it. So without talking -- without talking about strategy specifically, let me say that we've been working very hard on developing very competent and skilled personnel and managers. So it's not that we are just sitting and waiting from our strategy to appear and expect it to happen somewhere late in this year and only then will we start working. No, we've been working on that issue already.
What is still missing back, it's mainly a manner of communicating certain strategic decisions. And of course, some choices between strategy A or B to be made. But increasing revenue and increasing the bank assets in the PZU Group is our strategic goal. As I'm sure you know. And this strategy, its implementation has already been underway. So it's not that we are waiting for the publication of a strategy. Now this work is already going on.
It may seem to you that we are maybe just recruiting managers on boards, but my -- in my career, I've never before participated in the process where actually a whole management board were replaced and whole board were developed in terms of the skills, because we want to avoid the situation that we publish a strategy and then we ask, okay, who should do it. Now we want to prepare in advance. Of course, there are certain limitations.
However, as I said, we have built a strong foundation and the kind of building that will be directed on that foundation. It's a matter of discussion that we will have in a few months' time, but we will be prepared. We won't start by just looking for a lot.
Then I have two more questions. I just want to congratulate you to PLN 509 million in performance of PZU Zycie, but we had a similar result in 2017 were the provisions to be dissolved, as you said. But if you look at the debt incidents, lower by 2.5%. It translates probably into additional PLN 40 million that should be added to your performance. My question is, I do understand that some programs in the non-life segment, but why for second quarter in the row because in the first quarter, a negative effect was smaller. But no, this performance is similar. So can you explain what's behind the performance of group insurance?
Well, look at it from the perspective of IFSR, because the P&L, the profit you can see, which is very important in looking at for our group, the investments and dividends. But bear in mind that companies that offer life insurance are evaluated from the perspective of its portfolio value and ability to generate new business. But I was looking from the dividend perspective, so I'm mostly interested in profits.
But if we have the portfolio that we have and the deviation on life, in the next year may result from some false assumptions. We have taken even though we are quite conservative also as regards that incident. So we actually released higher profits than the amount that we could extrapolate based on the data.
We can predict the profits for next year, because life insurance is like a financial instrument. We have a number of contracts signed and they are expected to release a certain amount of profit. So if our assumptions regarding the incidents was correct, we will make as much money as we expected. There may be some divisions, but the main parameters are not changing. We are monitoring them. We and our shareholders have been monitoring them for decades. And if no pandemic or other catastrophic events appear, so we can be quite certain about our predictions.
So what we are looking at is about the shape of the portfolio. If we are cutting some part of it, [ Tomasz ], can you perhaps show it. Okay. We have to go back in the presentation. Yes, I think this shows it very well. So here, it's separate not combined. But look at group insurance and the CSM released PLN 308 million. So our plan was PLN 308 million and then [indiscernible]. So we were too conservative by PLN 41 billion. So this is the level of accuracy I can offer you. We are usually too conservative in our plans. So I cannot tell you how much profit will generate, how much dividend we will pay. So in Life companies, the most important part is to be able to rebuild what we've released. So to maintain the ability to pay a good -- the expected dividend of PLN 222 million and PLN 102 million, figures are most important.
If I don't maintain it, I will not able to keep it in the future. That's why most life insurance company, I know because of our balance sheets, which are like complicated, and there's overlapping areas. So we are hard for you to analyze. But basically, this is how it work. You look at the portfolio value, net value of the assets as a monetary asset and if distributor had -- of course, we can say it's a theory, but it supplier there including you, from the perspective of what we have in our life insurance company, the portfolio value, of course, we don't know how high you value this component.
And -- but it seems that the valuations in [indiscernible] and the ability to generate dividends, a company that doesn't grow, doesn't generate new business in 3 or 4 years time will keep generating the same dividend as one that's growing some the ability for the portfolio to rebuild the portfolio for the portfolio to recover is essential. This is my perspective.
And my last question, so we've seen losses in the TPL for a second quarter in the row. Looking at the market, do you think you will turn around and your figures will be in the green in next quarter?
I'm not sure how the market is going to behave, but we can see that there is a positive trend there. If you have a look at the performance of the market, broadly speaking, and if you have a look at different situations, and various companies or some smaller companies, some of the events were more spectacular, some less, some struggle. What it tells us is that you have an aggressive price strategy, which has a huge impact on the market. It is a very short-term strategy. So I think that the market, I hope is aware of the situation. And this is a highly competitive environment. But I think that this is a gradual trend.
I think that when customers realize that quality of service matters. And we, as the whole insurance business should pay more attention to quality and transparency. And I think that this will be reflected on the market, because interest prices in Poland still have a lot of to -- a long way to go if they want to catch up with the European levels of prices.
And the situation here is the following: people drive the same cars as the European average. So there is a lot of room for maneuver here. But as I've said, the market is highly competitive. If you have a look at the prices today, and what's going on today, this won't be reflected in the results until the end of the year. This is how it works because what we see today is the effect what we sold at the end of last year, plus the inflation rate, because claims are reported now and the premiums were sold last year, they are yearly premiums.
Let me follow up on the pricing and the motor insurance. We can see the claim ratio is at a similar level, but the cost of claims has gone up significantly. So can you tell us a bit more about the flexibility of pricing of motor insurance policies? Is there any issue here about increasing the prices? Is there an income issue regards of competitiveness? I remember that back in 2015, the price increased quite a lot. And now the prices haven't gone up that much. So can you tell us why?
It's difficult to compare because 2015 was the total disaster PLN 1 billion of losses in the red. So you had to pick up. It was unprecedented. Now we are in a completely different place when you think about the cost of claim handling, and there is an inflation rate, double-digit inflation rate in the cost of car repairs and spare parts, et cetera. Before there was a lower frequency because of a few reasons. So to answer your question, this is a highly competitive environment. And we have to address that when talking to our customers. And PZU is also in the process of consolidation with Link 4 because this performance is a total sum of the two. This is our subsidiary. This is a company that requires a lot of changes.
And we are also targeting specific segments of customers. Customers that are young so that we can give them a higher price. But they -- what they are also looking for is convenience for a few reasons. So this is a different price segment. And the risk adjustment is different here. The underwriting is here, it's different here, the pricing, the underwriting for this segment of customers is different. So I mean, we should target the segments which allow us to get higher premiums. And this group of clients is willing to pay more for convenience. So as I understand, the market is highly competitive, so you can't just be too aggressive in increasing the prices. You have to be more cautious here.
We have to watch and anticipate but our point of view is that we are -- we have to be aware of the surrounding the environment. And this is not obviously individual customers. I'm talking about lots of lead customers, which is you give a quote, but also this is a B2B situation. So we keep reviewing the portfolio and sometimes here, we can be more aggressive. But if we speak about individual customers, this is day-to-day competition with other players on the market. But we try to make the most of the situation.
You've said that the strategy will be published in Q4. During the last -- during the presentation of Q1 performance you said that already. And is everything here going as planned? So maybe you will be able to tell us a bit more at the end of Q3.
Now let's take what we have on the -- told you, we walk our talk. This is going to be a standard here, but we can't tell you everything. We tell you what we are allowed to tell you so we want to be professional. As I've said, we want to have professional management leadership here, and we have hired a few good managers. And we have been able to choose from top management, top managers here in both banks, really, there are very good people with great expertise that we're applying, but we just had to choose some. We would be happy to hire all of them but we weren't able to. And this is what we've been doing also here in the insurance companies.
But as we've said, working on the strategy as I [indiscernible], it's not about drafting a document. This is about analyzing very thoroughly many different aspects, and we've already asked about the banks. We have to inquire and we -- it's hard work.
And also if you take motor insurance, we've been focusing on the priorities, you will expect us to be focused on. And also importantly, we need to choose the right people to work on the strategy, because this needs to be a reliable document drafted by highly scaled people. This is also important. So we are now in advanced stage. Works are ongoing, but of course, we will do it as soon as possible on the end of the year is as variable.
And I'm sure you can see that we really listen up -- read what you write and we listen to the investors, not only in Poland, we listen not only to analysts but also investors directly. PZU -- it's my personal opinion, but I would like to say that PZU is perceived as a dividend-focused company. Maybe you don't see it directly, but Artur said today that we introduced business units and maybe we missed it. Today we have an organization where Board members are divided according to function. So one member is in charge of IT and other one of sales, et cetera. And then in the end, the profit or the dividend is the responsibility of CEOs when business units are introduced, the main changes that managers are no longer assigned to individual functions.
Of course, these functions have to be managed as well. So you have to have IT products and sales. But the division will be different. It will be a conglomerate of several complex areas and every board member responsible of [ one be you will be PE ] and responsibility for the P&L. Of course, the influence will grow. They will have influence on costs, et cetera, but they will be the people responsible for giving you the comfort of receiving our dividends. So the Board will also be responsible for delivering the part of event and creating capacity for dividends. The same applies to our assets, including banks. So if we are dividend based and we expect that some will be our assets that there will be no mix of different factors.
If you expect dividends, that's what we expect as well, state treasury is also dividend based, dividend forecast in terms of its structure. So we have to streamline our organization, so that it is reflected in the structure, and we have to give clear guidance to all our management Board in which we have invested and tell them that we expect from them are clear countries at the end of 2024 or in 2025. Well, that depends on the trend. I think it will be reflected in both years. But if the trend continues as we expect it will, we will see it in both. The nature of this business is that some effects are seen over time.
So today, when we say an insurance policy, it will contribute to the performance next year. But what we sell in 1 month's time, the majority of it, [ 7, 12 ] of it will contribute in the following years. So if the market continues better and if we continue selling on it, these improvements will contribute to the performance in the following years. Motor insurance is not only about price. I think it's about dozen million zloty. The effect we've seen cost by weather events, by hails, flooding, Costco insurance that covered that. So these effects already visible and it will be more visible next year.
A question from [indiscernible], our expectations regarding growing prices in Costco and TPL in the next 12 months. I can't answer this question directly. Of course, we do have some expectations in this regard. And I assume that looking at the great cost advantage, we have cost advantage due to risk dispersion, not knowing this business under pressure. Let me say the following: companies with a much lower balance sheet value and more less capabilities, then we also have rational managers, and they also observed the development very carefree and I'm sure it will affect development, the price development on the market.
There are also two similar questions from [indiscernible]. It was a negative influence of weather events, one-off effect were similar weather conditions repeated in July and August and can they affect performance in Q3?
Well, I'm sure you've been observing the weather development. Today, it's difficult to answer this question. We do have some data from July already. We don't have data from August yet. So it's much too early to answer this question. It's really hard to talk about the final performance of a quarter, which is still ongoing. So I won't be able to tell you anything about Q3. What I can assure you of is that we are watching the situation clearly, that this quarter is not over yet. We have to wait for the remainder of August and September to now.
You talked about profit dividend a lot. In this context, let me say that certain weather events flooding, for example, does affect profit in a given year, but the reason why we have a strong capital base. Is it to be safe in terms of our capitalization, but also in terms of our dividend policies. We are sometimes asked why we received such surpluses, surpluses, et cetera. And of course, I don't want to give you any declarations. But one of the reasons is that when there is a worse year in terms of P&L, we still want to maintain a stable dividend policy for you, for many investors. It is very important that we do.
So even if there is a certain degree of volatility, and it's necessary in insurance that the nature of this business, some years are better, others are worse. But this policy gives us a certain buffer so that we can ensure sale cash flow.
Let me comment on the weather events. Of course, now that the weather is changing, but it is already reflected in our reinsurance program in our policies. What's more difficult to predict are some momentary amplitudes or the locations of certain events. Because the effect will be different if a certain weather event affects non-urban areas. And it's very different if it happens in a city. So what we have shown you in the result from this year is not really showed. There were no such developments. In the previous years, perhaps. So a certain impact is visible over time. The main difficulty is with the momentary developments. Looking at the scale, a few dozen, a few hundred million may be visible.
There are two questions about life insurance. [indiscernible] from HSBC. Question about your previous words. The question is if the business keeps behaving according to plan, can we expect that the margin for group insurance and individually continued insurance will remain at the level of more than 20% in long term?
Yes. Majority of the profit that you see, if you really look at it from the P&L perspective with the premiums and then the claims, underwriting margin from it, this margin is already embedded. So to show, it's included in the model. So it will be at this level. What would have to happen for the margin to change?
Some very strong assumptions would have to change. But the assumptions with different rates. This is something we have an influence on. So with hard likely. In the long term, what we can't guarantee is death incidents. But apart from the COVID situation, our mathematicians are very conservative in their calculations, and we have very conservative in the assumptions so we adopt based on it.
So, so far, for the last 20 years, that deviation was always positive. Deviation from the assumptions. One famous general said, "I'm not afraid of known, unknowns. I'm afraid of unknown unknowns." And the pandemic was such an unknown, unknown. Right now, it's a known unknown. In the past, we would never have expected it. Now we know that we have to.
So in this context, we can expect that the margin will be maintained at this level. It's already embedded in our models. We would have to really see a very strong deviation as regards the claims. And the main factor is death incidents, but death incidents, this rate is actually improving. So we are glad about it and so are our customers.
What's that repricing potential for the life insurance portfolio. In terms of repricing, the potential depends on that part of insurance we are talking about. So if we talk about the insurance, we've already sold, we are fighting that so-called indication because the insurance, some is adjusted over time, it's called indexation and it happens on a certain -- based on a certain model. But this indexation is voluntary, not obligatory.
So our role is to convince people to do it. For example, if they have taken out insurance of PLN 100,000, but in the meantime, there was a 20% inflation. It is our role to convince them to index the insurance of the adjusted to increase to cover for the inflation. So this is an important factor. So we have to -- let's say someone has in short the family for PLN 100,000 for different eventualities. So we have to work with them to convince them. They have to increase it because their prices have increased by 20%.
If they want to have the same coverage for the family, the they have to be insured for PLN 120,000. As for health insurance, it is actually carried out by the life insurance company and the analysts are not used to it, because in other insurance companies, it is a part of a non-life sector of the property insurance and there is some rationality behind it because, okay, there is a certain amount you have to pay for a doctor's visit.
So in this sense, it is similar to property insurance for us, it's part of life. Our contract health insurance contracts are repriced every year. So this indexation, I would say, is a short. The further development of repricing will depend on the development of the medical services market and the major component are people. But if doctors have to pay more for electricity, they will have to charge more. So not really repricing is included. We are able to do it every year in the long term, does not strongly affect the performance, would you can sometimes observe a certain fluctuations, but it is true for different businesses, not always can you immediately translate your increased production cost into increased prices.
In the long run, it happens, but not immediately, the market, finally finds a consensus, I can really observe very clearly. As for motor insurance, well, here, the rationals are slightly different. There are four major players on the market. And what I've been observing on this market, they've been acting in a more rational way. And the last years, then smaller players in different segments because these four players, they operate at a big scale, and they have to be rational. They can't focus on growth only and think of profitability later. No, there are no entrants on the medical insurance market. Of course, there is competition. It is a competitive market. But I wouldn't be worried if any difficulties other than in the short term until the moment when we can convince our customers that prices have grown.
A question about the real estate portfolio, which percentage of the real estate portfolio are offices?
Well, it is most logistics 60%, 65%. The remainder of the portfolio is split by half between commerce and offices. In terms of cost question from [indiscernible] onetime administrative cost dynamic, can we maintain and have you reviewed the salaries in the first half of 2024. Do you want to talk about salaries? Or should I?
You do.
Well, as for reviewing the salaries. Formally, it is done after the end of the year. So in this case, it was actually done early. What we did in Q2 was, we allocated certain funds and gave them to the managers. So that they can pay out bonuses to those employees who have contributed a positive results. Acquisitions, what's our appetite for acquisitions in Poland and outside?
We are looking at it. We are open. We are open to any CapEx that might arise and we will try to take part in them but speaking about our growth outside Poland, it's a classical M&A model, which means acquiring companies. It's also about certain lighter models, freedom of service and other opportunities to submit our P&L to offer a competitive digital process, because this is what we have in Poland and to target external markets this way.
There are other companies which have a similar model. And there is also another thing we are doing, and we are now acquiring talents, both in Poland and abroad, which is using our P&L and our activity on the reinsurance market, which is also a type of externalization of the company, because this is not such a capital-intensive model. It's less capital intensive. It allows us to go abroad that gives you expertise. It will let you realize whether this is worth and profitable.
As they say, first you need to taste the beer to be -- to realize whether it's actually worth buying it broadly. And we want to listen carefully to you, to our stakeholders, we've been in the U.S., we've took different stakeholders. A dividend company, as we understand, is able to think about M&A, but in such a way that it doesn't have a negative effect on the dividend. Well, otherwise, you would have to a proof of a situation where, okay, we're going to stop paying you dividend for a while. But we are trying to identify companies that would be able to contribute to our cash flow soon so that the dividend remains stable and not at risk.
Thank you very much for this meeting. Let me sum up. This is a dialogue we talk to you, we try to be open and available for you. This is what we are doing. And please bear that in mind. And secondly, what also matters is that we don't give you empty promises. We have already had some achievements in this short period of time. I mean, new hires, the new model and focusing on the most urgent issues. First, the most important issues for our investors, because we want to be a reliable partner for our investors. Thank you very much for taking your time. Have a nice day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]