Powszechny Zaklad Ubezpieczen SA
WSE:PZU
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Earnings Call Analysis
Q3-2023 Analysis
Powszechny Zaklad Ubezpieczen SA
PZU has shown considerable strength in its Q3 2023 earnings call. The highlight is an impressive improvement in return on equity (ROE), which surged from last year's 13.6% to an extraordinary 22%. The company's strategic march towards a PLN 5.7 billion target is fueled by substantial growth in the Health segment, up over 20% year-on-year. Clarity over the company’s earnings story is bolstered by a remarkable insurance revenue hike by PLN 600 million compared to the previous year, totaling PLN 6.920 billion.
Three pivotal growth vectors are larger net sales, increased inflows to the employer's pension scheme, and changing market conditions. They collectively contributed to a 56% increment compared to the previous year. In the dynamic landscape of property insurance, PZU has solidified its position with an increased policy quantity and growth in non-motor insurance sectors such as corporate insurance and real estate, indicating a holistic approach to portfolio development.
There's a noteworthy uptrend in sales, with motor insurance in Poland acting as a prime accelerator. PZU's mindful product mix strategy—less cyclical with a lower share of motor products—is ensuring more predictable outcomes and strategic accomplishments. The company reported growth in non-motor insurance by 22%, outpacing competitors and underlining PZU's distinct market resilience.
An 8% year-on-year surge in contracts to 3.4 million and premium revenue growth of nearly 20% highlight the company's successful capture of value despite grappling with market-wide inflationary pressures, which inevitably have been reflected in service costs.
With its investment portfolio remaining stable, PZU saw a 6% rise in insurance inflows, generating over PLN 100 million more compared to the previous year. The company consistently aims to align with strategic goals, striving to hit the ambitious gross insurance revenue increase at a 10% annual rate despite it being a formidable challenge for a group of PZU's magnitude.
The dividend policy has not been altered, with the threshold set between 50% - 80% of the profit dedicated to shareholders. PZU is in dialogue with regulators to develop a model that accurately reflects capital intensity, which may provide leeway to share positivity in the coming times. Yet, final recommendations from financial authorities are awaited to set the definitive course.
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Ladies and gentlemen, it's a pleasure to welcome you here. I'm happy to share my presentation, which will sum up the results of PZU in Q3 2023. Let me give a warm welcome to those who have come here personally. I'm very happy to see you. I hope that the audience will only get bigger in the future.
And now let's get to the point of my speech. I have divided this presentation into four sections, which is the main achievements, business development, financial results, the updated strategy and where we are. And to conclude, a few questions from the audience, if you have any.
Now, the main achievements. We can say that Q3 witnessed a high dynamics of sales, solid results, return on equity exceeds strategic ambitions. And this is a good opening and conclusion for Q3. But I'd also explain to you why and what's behind these extraordinary results. Well, what has influenced it? In this Q, there has been a very high insurance services results, over PLN 1 billion. With good property insurance profitability and also a high recurring rate, after I [ hide a trade period ] because of COVID, we had a higher life margin and also individually continued insurance. High results in the investment portfolio compared to Q3 last year. This was a rate of return over 26% and a high contribution of banks to the group's result; Q3 last year was difficult for the banking sector.
A lot of write-offs, the mortgage memorandum and a higher BFG burden. This all had an effect on the results. And also our results were impacted by this. This time we have PLN 0.5 billion contribution from the banking sector, especially speaking about the interest income. This has contributed on the quarterly net income, which amounts to over PLN 400 million, and the value has doubled compared to last year with the corrected ROE 22% compared to 13.6% last year.
There's very good news, namely I mean that these good results have been achieved with a high dynamic of revenue. The insurance revenue is a new measurement way that describes the revenue of insurance groups. So the net insurance revenue has gone up by PLN 600 million year to year and amounts to a very high figure, PLN 6.920 billion. Property insurance has contributed, though, in the first place, both on the side of insurance in Poland. So overall, the growth -- the sales rate witnessed by PZU Link4 and TUW PZUW. Also, the revenue of our foreign companies has grown significantly over 15% year-to-year, especially if you look at the Ukrainian market. So this is a good result.
Now, life insurance. Now starting from this year on, we've been speaking about life insurance in different terms. So because of that, the increase is not as big, slightly over 2%. There is a strong growth in the Health segment over 20% year-to-year, a very promising result. It's a very promising result from the point of view of the strategic goal, which is PLN 5.7 billion.
Also, there has been a dynamic growth in the assets under management. Let me mention three pillars of this growth here. First of all, higher net sales amounting to PLN 2.24 billion plus inflows to the employer's pension scheme and also the changing market situation, which also applied to the same period last year. This has influenced this increased 56% compared to last year.
Now the situation of the PZU sales, net revenue on insurance. So the main driver is property insurance here, both in Poland and then foreign companies. Now speaking about the pillars of growth, they are similar in different markets. So mainly it's motor insurance in Poland. MOD was a leading driver here the same as in previous quarters. This insurance was growing, first of all, because of the change in value. The value of cars has gone up over the last months, but this has stopped now. Now the market has become normalized. And now what we are seeing is something typical to the car market, namely the loss of value over time, so a very normal behavior. This happens after 18 months of growth in these terms. Still MOD, the quantities of policies have gone up as well.
Here the saturation of the base, higher accessible, higher sales of new cars, better accessibility of the leasing market and also a very dynamic rate of growth in terms of imported private cars. All these have amounted to significant increase in this segment. There's one more thing worth mentioning here. And I mean, nonmotor insurance and the high rate of growth. Here a growth of over 17%, mainly on corporate insurance, but also mass insurance strongly contributed to this result, also farming SMEs and real estate insurance. Here in this group of insurance, there is something that has been consistent over the last few quarters, namely a growing saturation of these insurance groups in our property insurance portfolio.
Now Life. As I've said, a smaller increase. This is because of the new way in which we talk and think about long-term insurance and life insurance is a long-term one. On the side of insurance, we show premiums in the first place, allocated for the expected growing costs, loss benefits, administrative costs, distribution, adjusted increase by lower contractual margin release, which is lower year-to-year, especially given that we expect a higher utilization of the health risks because of the health debt. This is something we have already talked about many times. This is very typical for this market, especially since there was the pandemic for over two years, and it was harder to get an appointment or access medical services.
Now this has picked up and health services, our costs are growing. There is an inflation rate, which is quite higher in the health services than the usual CPI. Therefore, the contribution of the CSM is going down this contractual margin -- the contractual service margin. High security of the operations at the end of the first half year, there is a classical delay here in the results and the capital situation solvency, 227% over the strategic goal and also a lot above the reference group.
So a strong equity position, a safe diversified portfolio with a little volatility because this is what we want. We want a lot of productibility with a proper level of risk, which translate into what you are seeing today, also ability to monetize these extraordinary profits. This allows us to continue an attractive dividend policy, which has been supported by a high level of result at the level of the holding company, PZU SA.
A dynamic rate of growth. As always, we've been trying to achieve it in a sustainable way. We've been taking broad measures to promote healthy lifestyle and environmental behaviors, environmentally friendly behaviors. We've been growing in a consistent manner when it comes to the value supplied to our customers as part of the TUW. To us, it's not only a distribution channel, this is our competitive edge. And this can't be carried out outside of the PZU. This is a very special part of our activity. But this is also our services provided as part of the [indiscernible] point, our colleagues are there to show companies that want to take out an insurance policy will ask how they can affect or minimize the risk themselves, which, on the one hand, makes the year premium more attractive.
But on the other hand, this leads to certain kickbacks, which are available to our customers if there are no claims.
And what about our achievements in Q3 and how they have been shaped versus the entire market landscape, so business development. Here, just let me remind you that we compare ourselves to the market based on the recent data available after two quarters of this year. So we will talk about how this market has been developed in Q2 and how -- what is the position of PZU at this background.
Of course, we start from nonlife insurance, which in the second quarter, they are losing the high dynamics from the beginning of this year, but they continue on their growth path, both for motor and nonmotor segments with slightly different dynamics. Of course, it will not come as a surprise if I say that on the side of motor insurance, the flying wheel is third-party liability with change of premium at the level of plus 15%, which has taken place both in terms of change of the premium and number of policyholders and cars insurance.
When it comes to TPL, dynamics are slightly lower, 3.9% -- 3.7% and they reflect to invest -- extend average prices with a slight increase in terms of exposure. Continued growth in nonmotor insurance plus and over 9%, the quantitative effect the property insurance, Chapter 8 and Chapter 13 almost 19% growth with 13% dynamics. And at this background, at the end of the second quarter, the -- we had a high share of written premium at the level of 31.6%, which is an analogical to our share after half a year in 2022. Just let me remind you that we have recorded great performance, especially in Q4 last year that will be presented later on in the context of insurance revenues in nonlife and property insurance mainly, so we assume that assume a similar path in Q4 this year.
And so this is the market landscape. And our share in sales at the level of 31.6% and over 34.4%. So what is going on in the market, especially in this motor part, which you frequently ask for Q2, so the last market data available, they have confirmed growth at the level of 3.7% in Q3, which is based on few data, which do not cover entire market, but they represent a kind of proxy, so we can observe a continuation of a positive price trend from the second and from the first quarter, however at a slightly lower dynamics in Q3, achieving only 2%.
What makes us happy, it is the situation, which is going on the background of lower loss rate, which has dropped in Q3 by 4%. And what we've observed, it just boost of the market in terms of the number of car accidents in September, a significant growth, which can stem, maybe you confirm that, with their experience with the way how you commute from home to work. Of course, you can have your subjective feeling, but we can see that the traffic is back on the street and we can experience a new trend and the beginning of a new trend.
When it comes to PZU Group and property insurance on life insurance, we are entering into Q3. And unfortunately, the story is as it is. So taking into account the market condition, we are continuing on a growth path, which we entered in the half of this year. So we are recording our sales in terms of written gross premium at the level of 10%.
We can see some boost in nonmotor part, which I've already discussed. It is especially significant because if we change the structure of portfolio from the perspective of customer -- the product mix, we are less cyclical than other parts of the market. And we have lower than average share of motor products in our total product mix, which allows us to act in less cyclical and more predictable work and to deliver on our strategy.
When it comes to growth, the company in this area, which is non-motor, 22% year-on-year, which is significantly higher than our competitors in Q3 at a lower dynamics in motor insurance, of course, slightly above 3%. And of course, it is supported by higher sales when it comes to MOD here, 7% dynamic and with a flat year-on-year sales when it comes to MOD, the volume -- the GPI, I am sorry, and here volume higher than price increase.
When it comes to property insurance, we focus on prevention and sustainable growth -- sustainable development goals. When it comes to new products, especially for crops, it is possible to increase your own share and to -- we already covered some and transferred the handling of some products to -- my PZU online service. So entering smoothly in the realm of life insurance, we're going back to Q2. Life insurance market in Poland is in its upswing with -- but it's developing in a different way for periodic premium and single premium.
For periodic premium, the major contributor to this dynamic, if I may say so, there were some add-ons. So accident and illness insurance over PLN 155 million of additional premium and 8.6% year-on-year growth dynamics with the baseline at the level of -- and change versus the previous year on -- of the order of 4.4%, which gave us PLN 23 million -- PLN 82 million, I'm sorry.
When it comes to life insurance, we can see premiums and rates going up as they need to reflect higher cost of insurers. We can observe an increase related to -- on especially these with the level of cost exceeding the level of inflation in Poland, so I mean all additional services related to medical services, hospital treatment and so on. When it comes to a single premium insurance, the growth dynamic for the entire market is 16%, but we know that it's 15% of the entire market. The -- an increase in the written premium in this group when it comes to Group 1 insurance, PLN 318 million, plus 71.7% year-on-year. PZU Group with its offer within endowment, it has made a significant step here with, at the same time, a little bit lower rates and a slight decline in unit-linked sales.
The single premium insurance market participation went up to 26%. Last year, in the underlying period, it was slightly above 12% of our market share in this concrete market segment. And when it comes to our share and participation of regular premium in the market, it was at the level of 42.2%.
Talking about PZU Life, PZU Zycie. As I said, the major driver behind this results, these were costs shaped by the dynamics of price increases and the characteristic feature for such mature portfolio as the ones we handle at PZU Zycie is a slightly lower dynamics of main portfolio measured with the premium in the segment of group and individually continued insurance. The premium went up by 3.5% and for all -- for these reasons I mentioned before.
On the side of individual insurance at the same level as last year, but I'd like to draw your attention to the fact that despite the fact that there is no nominal growth, the sales structure has been modified. So we can see more protection, insurance sold by our own channel and in banking channel and at the same time, lower sales of single premium product, this quality saving and investment product, which is distributed within our network and in the banking channel and this endowment product, which is very still very popular among our customers, but a slightly lower interest than last year.
In terms of our new product initiatives, main process, we have implemented some process improvements in order to increase the participation, and we have changed and increased the minimum premiums for capital and protection insurance. For the health pillar, what is really important is the fact that we are growing in scale. And at the end of Q3, the number of contracts amounted to PLN 3.4 million, that means a growth by almost 8% year-on-year.
In terms of revenues, in PLN, they have gone up by almost 20%. The 25% that was the sum of subscriptions and our medical centers. And of course, this increase comes from the scale on the one hand and on the other, it results from a high inflation in this very particular segment, inflation which in part is being amortized by us, but unfortunately, we need to record it and reflect it in the cost of our service. What is really symptomatic here is that our customers, they think high of the quality of our services, which is reflected in high satisfaction survey results. And despite the fact that the prices are increasing, we are observing that customers are highly flexible and reacting positively to this high inflation trend. So after a long period of flat prices and high availability today, all these translates into lower than expected and slightly and very high retention period and low churn. So that's a positive segment from the perspective of assets under management. I think I shared some important information by now.
Similar to the earned premium that takes into account not the nominal, but how the premiums spans in time. Therefore, consistency and growth that are achieved quarter-to-quarter are very important, more important than an important significant growth, but only one-off. Also a huge increase in our foreign operations, over PLN 100 million growth compared to Q3 last year.
In life insurance, as I've already mentioned, the dynamics is slightly lower here. On the one hand, this is because there is a growing premium to cover growing expenses. At the same time, there is a lower -- a slightly lower release of the contractual services margin. Here is a change quarter-to-quarter of about PLN 11 million, so lower this time in the context of the higher take-up of medical services because of the medical debt.
Now net revenue on insurance. So after reassurance cost, the rate of growth has been a bit lower, 8.7%. This reflects the fact that the costs of reassurance have been growing. And also there is a growing portfolio of non-motor corporate contracts, which, as a whole, have a much deeper reassurance in proportion, but also in terms of the excess. So we can see a huge growth here of the reassurance cost, both in terms of the scale. This derives from the scale of the portfolio, but also there is a growing cost expense because of the losses of the reassurance companies. And so there has been an attempt to pass it on to the customers. We've been trying to optimize the reassurance costs.
We've changed some layers. We have withdrawn from some layers, which we have considered a quasi-capital instrument in the context of all the increases, so we've been trying to optimize our reassurance coverage. And I'm telling you this because you can -- you might also see it in the growing SCR, which is also a consequence of these changes in catastrophic reinsurance. I'm just explaining this to you because you might have questions about our results compared to Q3, and this is because of the growing reinsurance costs. Because of that, we are trying to give up what in the current circumstances is not essential.
Now claims and benefits. A few things here. First of all, a growth brought about by the growth of the portfolio. This is quite obvious. On the other hand, we have a slump in [ rentability ] of the mass TPL product. And in corporate, nonmotor insurance, we have come back to normalized margins. In Q3 last year, there were external ordinary profits here on a few single contracts, and they translated into the combined ratio of 52.7%. This is what it looked like in Q3 last year in this segment. Of course, this is not representative. So here we are coming back to the levels of previous 80%, and this has translated into the growth in claims and benefits. Also in this quarter, we have recognized the positive development of the reserves from previous years, especially in the corporate and Non-life segment. In a few contracts with the reinsurance which, to a certain extent, confirms our quality and prudent approach to the valuation of contracts.
Administrative costs, no surprise here, especially given that salaries are growing and we've been trying to adapt our salaries model to the changing market circumstances, higher premiums, IT costs, maintenance, both IT development and maintenance here, the costs are growing. Also, the external contracts are growing with our technology partners, which have been indexed gradually. We have growing real estate because of the indexed rent and the cost of utilities.
The sales growth is achieved increasingly in third channels. So -- multichannel brokers and dealers are becoming increasingly important. They have higher distribution costs. Also, because of the growing share in the product structure in the corporate nonmotor segment, which has a higher distribution cost. Also here, year-to-year the acquisition cost of insurance has gone up.
Now amortization and the loss component. There is a slight increase year-to-year, especially on the light -- on the side of life insurance, which is because of what happened last year. Last year, the expected death rate was improved and it's expected to effect on Q3. Here what you can see is a normalized value. Last year, there was a one-off drop. So here in nominal value, there is a growth of about PLN 40 million. So this is why it looks this way. On the other hand, we have an improving quality of the Life portfolio, especially in foreign operations. In Poland, year-to-year, it's at a similar level, financial income, net financial income now. So it's our investment strategies and results and also assets that are to secure our insurance liabilities. It's also related to increasing the liabilities because of the changing of the money and time is to discount the insurance flows.
Here, we can see a 10% growth year-to-year and also quarter-to-quarter. This means a higher profitability of insurance portfolio, which translates into higher operating results reported by different insurance segments. That's why as a sum of the mentioned changes, the operating profit of the nonbanking sector is growing compared to last year by almost 10%. And quarter-to-quarter, in the Q3, there was a smaller claim ratio in life, in non-life, rather. And here, there is a growth now and this is the main component of the change between Q2 and Q3. So we can speak about certain seasonability in terms of the claim ratio in non-life. Increase -- an important increase in the banking contribution, we have already discussed that. And this all translates into a solid result of PLN 1.045 billion, with a return on equity of over 22%.
Let's go through different segments of our operations now. To me, it gets a bit complicated, so I will have to put on my glasses. Now, non-life. Year-to-year growth, 10%, mainly in MOD. And secondly, nonmotor with a flat market in terms of the TPL on the 3% growth. The cost of insurance services has been growing at a smaller rate, which translates into the increase in the operating result, 8.6% versus the dynamics.
Let me mention one thing here. The insurance services result has been growing at a higher rate over 13%. There is some adjustment that is about the revenue generated by the assets to cover the reserves whose contribution was quite lower compared to last year. But this -- in this segment, it covered financial cost with quite an important excess.
Now, corporate insurance. You can see the growing reinsurance cost. Compared to last year, the growth has been of over PLN 100 million with a growing insurance revenue whose dynamic of growth is almost 22%, mainly in nonmotor. The cost of insurance has been growing as well, mainly because of the growth in claims. This anyways normalizes the extraordinary profit from Q3 last year. You can see here in this chart to the right the rentability of the nonmotor segment. This is at a level of 52.7%, which is completely unachievable over the long term; 83%, this is the normalized value this year. And this is one of the factors responsible for the increase in the claim ratio in this area.
I would like to highlight here the improved rentability -- profitability of the motor segment and also nonmotor. Here, the normalization of a solid parameter of combined ratio for the whole portfolio, 82.4%.
For life insurance individually continued and group slight increase in this quarter, which results from three important factors. First and foremost, different mortality rate expectations. We have already discussed this parameter. There is -- the situation is improving. I will say a few words more. And because of this improvement, this improvement has been consumed by our expectations towards utilization of medical riders, which more and more reflecting the utilization measured as the quantity of medical procedure per 100 insurance policies. So here, we can see that this ratio has been deteriorating as well as costs year-on-year because the costs are spiking due to the inflation in this segment.
That is translated on the one hand on changes of the necessary premium needed to cover claims, but also something we said before. So a lower level of freed amortization, this CSM margin due to the lower performance in this respect. So we observed this year, it was a slightly higher level of lapse which is an interim situation, which is characteristic for every period of slowdown and from the macroeconomic perspective, from the perspective of consumption, especially in the first part of this year, the consumption is recovering, but still the market consensus shows than this parameter for entire year will be rather negative with its negative impact of individual consumption.
On the side of the cost of insurance services, we have recorded some upswing, but slightly lower, which affects the margin in the segment. So these are not the levels that we got accustomed to in the pre-pandemic period. However, today, our greatest question is how long are we going to benefit from this interim situation, this recovery related to lower mortality rate.
And now let me jump into the next slide that presents the situation in details, and then I will go back. So as you can see in the picture, once again after Q2 and Q1, we can see the death rate, just number of deaths, which compared to Q3 2019. So both versus the previous year over 9% and versus the baseline in 2019, we are beneficiaries of the lower death incidents, which is affecting the behavior and claim rates for protection products and only protection risk in this part of group individually continued insurance.
On the other hand, there are some negative impact of health products that makes -- that drives this factor, this ratio up and 1.5 percentage points and other risks, especially the risks related to giving birth or benefit due to giving birth and some chronic injuries, so that all makes up for this interim situation. I think it's going to be interim, maybe we will still see some effects, there of next year. Because if we take into account the mortality split into age groups, there is no significant change versus the situation before the pandemic. So it's not any significant impact and the behaviors among the population, they do not affect this parameter.
And now let's go back to the previous slide, not so easy. Individual protection insurance. For individual protection insurance, increasing revenue by 17%. We can see that the costs are slightly higher with -- at a slightly higher dynamics. They are increasing both because of change of the product structure, product mix between Q3 and the underlying period last year, but also higher benefits and claims and their costs versus what we were dealing with last year with a little bit higher situation or higher result related to the loss component, which is higher. 10% drop for operating results, but this is quite a stable performance in absolute values at the comparable level as in the previous year with a change of net financial costs by PLN 6 million versus 2022.
What's going on with our contractual margin with our CSM. We can see for individually continued and group insurance and for individual protection insurance. So as for margin, in the present quarter, we were working on the balance. We have analyzed the balance for the end of Q2, and we can see some additional impact due to some additional -- some riders, which were signed. So this proposal includes quite a material adjustment, As it accounts for a shift of assumptions resulted from liabilities, which result from the negative impact mainly due to an increase in the level of utilization of health benefits, which affects and this adjustment recognized at the level of PLN 115 million, which has been adjusted by the interest. And so the total margin is PLN 27 million, and that causes that the closing balance on the side of group individual continued is at the level slightly lower than the opening balance for Q3.
On the side of individual subtraction. Insurance, the situation is slightly different. So a new component, PLN 45 million. That's a positive variance resulting from riders, translating into 45 minutes -- PLN 45 million plus interest caused a [indiscernible] in a given quarter, that gives us higher value than the closing balance of the previous quarter.
To wrap up the yield segment by segment, the most important information here is that for property insurance, which are sold in Poland, we can see high yield and they have slightly deteriorated by -- but due to the fact that our portfolio is expanding, the contribution of this segment to the consolidated result is positive. That good news, just let me draw your attention to the fact that our yield's level are at highly attractive levels.
Life insurance, here, we can see higher yield for group insurance. And we are observing some changes for individual insurance. They are behaving in a similar manner than in the previous year, but what is really important here is that in its entirety, so life insurance on the Polish side, they contribute more year-on-year and the change is at the level of approximately 5%.
When it comes to higher profits generated in this segment, some positive shifts in the Baltic states from the point of view of values, they cause that serve insurance services and this quarter at the level above PLN 1 billion.
When it comes to investment results and entire portfolio from the perspective of its structure, it remains flat, and the structure of this portfolio remains unchanged. Over time, we are going up, of course, for insurance flows, which are in this portfolio, so they're increasing, it's PLN 45.5 million and increases 6%. Still a very safe structure with debt instruments, 83%, and treasury, insurance, 65%, profitability at the level of 6% for entire portfolio and quite a high share of interest in portfolio of PLN 536 million and significantly higher contribution of the equity part private equity mostly and some dividend instruments that caused that year-on-year, this portfolio generated over PLN 100 million more. And successful growth on the site of property investments, they allow to end this quarter at a very high level the main portfolio, PLN 737 million, over 26% more versus the previous year.
When it comes to our solvency, this is something that attracts our attention. Are -- yes, SCR and our attempts to optimize the cost and to generate profits. So this drop at expanding position of own equity, which is adjusted pro rata by such an artificial position, we assume that it's an artificial position because it is slightly unpredictable when it comes to the point in time, it occurs.
To wrap up the strategy, I think that, that's the perfect moment for a Q&A session. Where are we from the point of view of our strategic objectives? We're on a good path for insurance revenues, health pillar revenue at a decent level. Just let me point out that achievement of all these objectives, especially our gross insurance revenue, I think that it's still within our reach. However, it's highly ambitious goal, meaning that we need to grow at 10% year-on-year, which is a real challenge, especially for a group like PZU. So for sure, you are reading the same comments and people are quite skeptical about the [indiscernible].
When it comes to the contribution from the banking sector, we have said a lot about it higher after 3 quarters than the projection made at the end of last year, but we know that it's dependent on the macroeconomic landscape and the situation that we are going to observe unfolding in the coming quarters. So PLN 4.3 billion, this is our net profit. Some people see -- perceive this result as a result of our rather cautionary approach. And I fully agree that that's the value that should be achieved and that should be exceeded even. And we wish that to all of us and to our shareholders because such profits reflect -- this is a reflection of high yield and correlated own equity. And here in the second dimension of over 6% versus the value of the strategic value, which was projected at the end of last year.
Thank you now. The presentation is over. If you have any questions, I will be happy to take them. So we'll take questions from the room first.
[indiscernible] Two questions. One, as usual, second one will be quite unusual. The first one will be about the dividend. What can we expect in terms of the recommendations?
Sorry, a technical glitch. This will help answer your question. I just show you the right chapter. Go ahead.
So the first question is about what can be expected about the dividend. The second question is rather unusual about the foreign operations because I think that the income from the Baltic countries has gone down in this quarter. Is there anything concerning over there that will be long lasting or is it a one-off?
Okay. So I will start with the second question. I don't think it's unusual at all. It's very usual because it's about insurance in one of our markets.
So you mean that the growth rate is going down? This is how we should put it, I think.
And let me answer this. Let's take a look at the three markets altogether, Lithuania, Latvia and Estonia and let's leave Ukraine aside for a while. We know that as of today, this is not a representative market. It doesn't follow the same trends and processes. So let's focus on these three.
Lithuania, Latvia and Estonia about 1.5 years ago started achieving huge growth because of the motor insurance. If you look at how the revenue evolved last year in every of these three markets [ solo ], the rate was of over 20%, both in TPL and MOD. So the markets after a short stagnation picked up quite easily and entered a new underdriving cycle with this level of increases, which didn't happen in the Polish market. We know that very well. We've witnessed 5 years of prices going down in realistic terms. Together, the average price is about PLN 560.
This is similar to pre-pandemic levels. And if you take into account all the changes in the meantime, this is quite unusual. We know why. This was offset by the frequency of -- claims but in the Baltics, the situation was quite different. They entered this phase much earlier. So quarter after quarter last year and this year, this is something that has been slowing down now, but that's why they have been delivering 2-digit growth rates.
And if you allow me, I'll have a look at the details in this specific quarter. So speaking about insurance revenue in this quarter for the Baltics, the growth rate was over 17%, a growth by PLN 97 million, starting from the base of around over PLN 500 million last year, this time of year. So yes, the growth rate is going down, but it's still solid.
Now the second question, the dividend. Our policy hasn't changed in that respect. You probably know it very well. The policy on dividend says that, well, we are a company of this specific nature where we generate value for our shareholders that is later on paid as quite an attractive dividend yield. So we should dedicate at least 50% of the profit generated for that, but no more than 80%. The whole surplus of over 80% goes -- well, the rest, which is over 80% goes for developing the scale because the larger the portfolio, the larger equity you need on this regulated market. This is according to the standard formula.
But works are ongoing in this respect. We are aiming at developing our own model of capital intensity. So maybe soon, we might drive a situation where we will be able to share some very good news with you in that respect. This is not the first attempt by PZU. We've had a dialogue with the regulator in the past. It's not only about developing a models, but it's also about developing a model that will be accepted by the regulator. We've tried a few times already. I'm not always successful, but this time on the third go, we hope that it's 3x lucky.
So getting back to the dividend policy, well, from the point of view of the capital of the equity, we meet all the criteria, the quality. And here, we all know that meeting certain quality criteria is necessary to be able to consider certain levels while we meet all the criteria. You know very well that there are two more variables missing here. First of all, something that used to be communicated on the market in the first half of December each year, namely the recommendation of the regulator about the dividend -- the result distribution every year. This is always sent to the banking insurance, asset management sector. So we are also looking forward to this recommendation this year as well. It will be binding to us, obviously as it can't be otherwise.
So far, this recommendation has been the following: the regulator after a few turbulences related to COVID switched to the 50% model of the current year and up to 100% of the non-divided results from the previous year. Will the recommendation be the same this year? Well, it's difficult to say, but we are all looking forward to it, and we were all looking forward to the news about the head of the authority. We know that the same person remains in office. So maybe this also answers this question as well. So if nothing changes here, but we don't know about it, but maybe as the chair of the National Supervision Authority, Financial Supervision Authority hasn't changed. So maybe if nothing changes here, there will be a very high result from this year and everything that was not [ divided ] last year.
Would we be able to manage this cost? Yes. Would we be able to recommend this approach to the supervisory body and the Shareholders' General Meeting? Well, I'm not in a capacity to answer this question on behalf of the Management Board, sorry for that. But I can only say that all the parameters necessary here are met. This is the only thing I can say.
Are there any more questions from the room?
[indiscernible] Could you try and give us an outlook about the margins for the Life and Non-Life segment in next year? Any trends -- any visible trends and any factors that might have a positive or negative effect?
Well, usually, we don't share such thoughts. I will do it in an indirect way. And I hope there's some answers for that question. So there is the first set of parameters. If we want to seriously discuss what we want -- we are going to expect. So the first set of parameters, there needs to be a confirmation that we understand the markets in the same way. This means confirming certain assumptions at the macro level. So I can -- what I can share with you is how we see this market and what we think about it.
Also in the context of submitting plans to the KNF for the next year, both for non-life and life. This is something very concerning today for many people in this company. While speaking about the macro level, there was a slowdown. Last year, we closed at 5%. Today, we are speaking about 0.6%, 0.7% or maybe something different, but not very different from this level. Also, household consumption is having a very negative effect because after Q2, it was on the negative side, very negative side. It picked up, but in general, on the market, there is a belief that this parameter will be negative year-on-year. So we are assuming that there will be an important pickup recovery in terms of individual consumption next year and also that there will be quite a high level in fixed -- of investment in fixed assets.
Naturally, this afterwards, translates into a demand for insurance products. So if there is an increase in individual consumption, we think that there will be a decreasing inflation rate and the average inflation rate will be about 11%, 12%. This will be at the end of this year and next year, it will go down to single digits, rather than 5% and 10%. I think we are on the same page here. And all that will be associated with a nominal increase of remuneration in the entire economy that will cause the value of dispensable income will go up adequately. And all that will translate into higher levels on Life and Non-Life segments, but there will be different drivers behind these growth. I think there will be some price adjustments for motor insurance for TPL. So depending on the inflation and on the average claim ratio increase with lower frequency, maybe we have just entered the phase which is starting to reshape the trend that we've been observing for so long. And if it's so, motor insurance, especially including TPL will be at 0 plus level in terms of their yield.
Taking into account that we had to do with the situation where MOD products were benefiting from an increase of the value and of the increase of the quantity of [ insured car ] which has stopped at a slightly lower level than the increase of price of cars and claims inflation. The market in this very segment has recorded a slightly higher margin. So I think that this situation will be adjusted and talking about the 0-plus level, I hope going to be undertaken by TPL and the level for motor insurance would be at the level more or less from the previous year.
I think that nonmotor insurance for all reasons I mentioned before, namely quite high dynamics of investment, inflation and assets subject to management starting from buildings, homes, houses, apartments and equipment and which is expanding also in scale. I think that non-motor insurance will increase add to digit dynamics. That should translate into dynamics for property business, which will be slightly lower than this year, assuming that this year, we will generate 2-digit growth, it will go down to high 1-digit value next year.
In such a market, we think that taking into account all other parameters and change to profitability of motor insurance will be at a similar level. And when it comes to the profit pool in nonmotor insurance, it should arise, but mostly due to the scale, not to the technical yield generated on average exposure. So this is my outlook for property insurance.
When it comes to other insurance, I can see potential for such high growth. I think we will still observe indexation of rates reflecting inflation 2023 was the first such a year with such a strong inflation impulse. And we all know that it's so difficult to serve a large portfolio over one year. So we will observe a continuation of the very same trend over next year as well. At the same time, we assume that there will be no higher lapse level that the dispensable income will allow our policyholders to benefit from a broader scope of products. And at the same time, they will not be forced to resign from their coverage.
For market rebound on unit-linked products market, I expect a continuation of this rebound also next year. But we know that depending on the distribution of all these insurance, insurance is not characterized by any significant excessive profitability. So leaving scale aside, I think that this profitability will not build any strong market trend. So having in mind the cost of activity, I think that, that could -- it's possible that's going to be a year where we will do our best in order to keep the nominal yield at a similar level as this year.
I hope that, that is a good response to your question. No questions from the room? so our online questions, [indiscernible]. What is the reason behind the drop in Motor insurance quarter-on-quarter? Is it due to price pressure or maybe a drop in volume?
Both factors are related, in fact. Let me put it like this. For TPL in Q3, we've maintained our position from the previous year in nominal values. And due to that fact, there were no increases absolutely in prices and taking into account the availability of course, was higher and that build scale, we might say that this price, effective price through exposure was slightly lower. But at the same time, in Q3, there was a significant market impulse, significant depreciation in MOD insurance, and we had to react to the situation adequately. That means that we had to respond in order to not to lose our customers for the benefit of our competitors.
So this signal has weakened, and we went back to the previous situation. So that was a market test. So maybe the PZU test. How -- what will be our reaction, what will be our response. So we responded and the market went back to normal to the situation from before the situation. So that was something that happened in Q3, which affected the situation in motor Q3-on-Q3 situation.
Next question? I thought I am able to check it.
May I ask you for help? I can see only a part of this question, I can guess the other part. And the second part is out of my scope completely. Okay. Do you expect an acceleration in MTPL price going forward?
We assume that if other parameters remain flat, we will see a gradual increase of prices that will be reflective of the situation on the inflation side, so both the cost and the inflation of claims. If it happens that the situation I mentioned and that we observed in September and which you might be aware of, and you are aware of it commuting every day to work, so if we -- if there is a change to the situation that was our reality for the last two years, maybe that would become an impulse to some higher price increases in this segment. However, for the time being, there is no such symptom.
And next question, do you see the benefit of lower mortality to continue for the next 3 quarters? And what does it mean for the group and individual continued margin for next year?
But it's -- I don't think it's a permanent change. So the decreases, let me show this slide once again, which were -- are slightly lower quarter-on-quarter and which are slightly lower than the adequate representative period from before the pandemic. It's not something which is going to stay with us for a long time. I think that's post COVID rebound. And I assume that for the next few quarters, we will still observe such a shift. Other parameters will remain unchanged. So if it happens that this new version of COVID is highly infectious and causes high illness incidents, so if there will be more -- the flu -- will be higher ending up in the fatal way, maybe we would go back to the mortality rate that we observed before, but let me remind you that the portfolio and the population was subject to some changes over the last two years. So that's going to affect the situation.
So yes, but I think it's a bit too early to tell that this is the situation, which is sustainable from the point of view of how it affects the group margins.
[Technical Difficulty] payout remain valid on IFRS 17 earnings as well as these were previously based on IFRS 4 earnings.
The answer to this question is yes, nothing going to change in this situation. Our dividend and equity policy during this strategy update and translation into the new standards of IFRS 17, it will be upheld -- it was upheld. So we still think that this is exactly the same manner of thinking about the PZU Group as we experienced before. So when it comes to our online questions, these were all questions.
We've exhausted the list of questions or maybe there are some updates, please let me know, but I think that I have refreshed and there are no questions. Any additional questions from the room? If there are no questions, thank you very much for joining us for this conference. I had a great pleasure to moderate this session and to speak to you, especially all of you who have visited us in person here on site.
So thank you very much for being with us. And I strongly encourage you to participate in next such meetings, and see you next time.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]