INSURANCE MARKET IN POLAND, 2015–2017 CEE INSURANCE SERIES

by Inteliace Research June 2015

Version: 2015/3

Selected pages from the original report

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SUMMARY

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• With over € 13 billion in premium written and a 41 % share within CEE countries,

Poland has the largest insurance sector in the region.

• Despite recently stagnating premiums, insurers operating in Poland are expected to

take advantage from the ongoing economic recovery already in 2015.

• Premiums are expected to rebound and increase at 4 to 5% p.a. through 2017.

• The non-life insurance segment is likely to rebound in 2015 as insurers will both

increase sales of property insurance and slowly raise tariffs in car insurance. Also

the improving situation of enterprises is expected to drive demand for specialized

insurance products in the corporate sector including credit and liability insurance.

• At the same time, a better economic situation and improved sentiment in

households sector, resulting from lower unemployment and increasing real wages,

will boost the demand for unit-linked and plain risk life insurance.

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13.12

5.73

2.70

2.11

1.94

1.82

1.12

0.91

0.60

0.59

0.37

0.34

0.29 0.080

100

200

300

400

500

600

700

800

900

1,000

-9.0% -6.0% -3.0% 0.0% 3.0% 6.0% 9.0% 12.0% 15.0%

2

Czech Republic

Hungary

Slovenia

Bulgaria

Romania

Estonia

Latvia

BiH

Croatia

Albania

Serbia

Lithuania

Mat

uri

ng

Dev

elo

pin

g Slovakia

CEE14* insurance markets - Size vs. growth matrix, 2012-2014

COMBINED LIFE & NON-LIFE

x.x Total 2014 premium (in billion EUR)

An

nu

al p

rem

ium

per

cap

ita,

2

01

4, i

n E

UR

Average annual premium growth (in EUR terms), 2012-2014, percent

*Major 14 CEE countries. Russia, Ukraine, Belarus and FYR Macedonia not included Source: National supervision authorities, IMF, Inteliace Research

Falling Growing

POLAND HAS THE LARGEST INSURANCE MARKET IN CEE14*

Poland

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PRESSURE ON CAR INSURANCE TARIFFS PERSISTS

3

424 438

451 471 480 482 483 478 472 464 454 447

434 423 418 413

369 373 382 391 406 409 409 407 401 395 386 379 372

834

869

913

958

1018

1050 1069

1083 1086 1086 1072

1040 1016

200

300

400

500

600

700

800

900

1000

1100

1200

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

1,055 1,094

1,131 1,154 1,161 1,150 1,133 1,115 1,099 1,083 1,071 1,063 1,058 1,054 1,045 1,032

746 767

799 827

852 857 835 819 804 796 788 783 781

1,829 1,870

1,903 1,933 1,921 1,914 1,923

1,894 1,872

1,844 1,807

1,783 1,748

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

-3

-2

TPL (Class 10), mandatory only Casco (Class 3)

* Premium collected within last four consecutive quarters divided by the average number of outstanding insurance policies in the same period. Source: KNF, Inteliace Research

Average premium per policy* by class and by type of client, 1Q2011-4Q2014 in PLN

Corporate and other clients

Average

Individual clients

Absolute growth 1Q10-4Q14 (%)

Absolute growth 1Q10-4Q14 (%)

Corporate and other clients

Average

Individual clients

Data by segment

unavailable after

Q1 2015

Data by segment

unavailable after

Q1 2015

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38.9 37.5 45.1

49.8 53.9

35.2 32.4

32.4 30.3

28.7

3.1 3.1

3.3 3.7

3.9

2010 2011 2012 2013 2014

4

• Unit–linked life reserves are increasing steadily, driving the overall technical reserves growth.

• As of 2014, unit-linked reserves accounted for ~62% of all technical reserves of life insurers, as compared with 50% in 2010.

• Other life reserves keep falling which could be explained with expiration of deposit-like , tax friendly products, which used to be very popular in the past.

UNIT-LINKED RESERVES DRIVE THE OVERALL LIFE RESERVES GROWTH

Technical reserves (gross) – Life insurance, 2010-2014 PLN billion

*Compound Annual Growth Rate Source: KNF, Inteliace Research

80.8

Life reserves

Unit-linked life reserves

Other

+3

+6

-5

+8

CAGR* 2010-2014

LIFE INSURANCE

77.2 Total= 73.0

83.7 86.5

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Products

Customers

Channels

• PZU offers ~80 various products in the non-life retail business. Products offered cover all 18 non-life insurance classes.

• Car insurance (MTPL+Casco) is dominating within non-life business with >60% share in the total GWP.

• „PZU Pomoc” – proprietary assistance service company is rounding up the traditional product offer.

• Own network: In total 414 branches.

• Exclusive agents: 9.1 k of which ~6 k in non-life.

• Multi-agents: 3k agents (all business lines).

• Brokers: 900 brokers

• Employees: 800 employees dedicated to sales - mainly in the corporate segment.

• Bancassurance: cooperation with 10 banks and 6 strategic partners including telecoms and airlines.

• Cooperation with ~ 1.4 thousand repair shops.

• PZU traditionally serves mass-market clients in retail business (mostly car and property) and all segments in corporate business.

• Total number of clients in the whole PZU Group (life + nonlife) exceeds 16 million or half of the whole adult population in Poland.

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NON-LIFE INSURANCE PLAYERS - PZU

*Non-life insurance share by gross premium written **Compound Annual Growth Rate *** Pro forma calculation based on figures derived from PZU Group financial statements. Source: Company, Press, Inteliace Research

• PZU is the largest traditional and local incumbent insurer with extremely high brand awareness (93%) in Poland .

• PZU’s previously dominant position in the insurance market has been gradually eroding over time but the process has slowed down in 2014.

History

Shareholders, 1Q 2015 (share in %)

Background

• 1991: State-owned insurer PZU converted to public joint-stock company.

• 1999: Partial privatization of PZU holding – 30% share in PZU SA sold to Eureko & Big Bank Gdański.

• 2003: Claims handling centralization.

• 2004: Launch of repair-shops network.

• 2009: Shareholder conflict resolved.

• 2010: IPO on the WSE.

• 2010/2011 Cost /employment restructuring.

• 2012 New Strategy: „PZU 2.0” adopted.

• 2012/2013 Entry into Latvia & Estonia.

• 2014 Acquisition of insurance businesses of RSA in Baltics and in Poland (Link4).

• 2014 New service introduced- Direct claims processing for own clients.

Results

Gross Premium Written PLN billion

Market share* (percent)

Net profit PLN million

Return on Average Equity (ROAE) Percent

Reversed market share losses in 2015

CAGR**

31.1 31.5 32.2

8.45 8.27 8.26

2012 2013 2014

1403 1263 577

2012 2013 2014

11.1 11.7 7.0

2012 2013 2014

NON-LIFE INSURANCE

***

-36

***

-21

35 65

-1

Poland's Treasury Other

Falling profitability in non-life business

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NOTES ON METHODOLOGY

FX rates:

• For the purpose of conversion from local currency (PLN) into EUR for most values presented in this report, including premium written, annual results, etc., average exchange rates have been used

• Exchange rates used in the report:

Estimates and Forecasts:

• In some cases, recent or verified data was not available. Therefore, necessary short-term estimates have been calculated to fill the gaps. Estimates are always indicated with the letter “E”

• When preparing forecasts/estimates, we have built models using latest observed trends, available forecasts of main economic indicators, seasonal changes observed in the past and other specific factors considered important.

Multiple sources:

• In some cases, multiple sources of similar data exist. In this situation we always try to select the most appropriate one in our view. The source is indicated in the footer area of each slide. Nevertheless, in specific cases, before interpreting the data, it is recommended to get a good understanding on the methodology of data collection.

6

EUR / PLN 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Average 4.53 4.03 3.90 3.78 3.52 4.33 3.99 4.12 4.19 4.20 4.19

End of period 4.08 3.86 3.83 3.58 4.17 4.11 3.96 4.42 4.09 4.15 4.26

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About this report

This report has been prepared using Inteliace

Research proprietary research and publicly available

sources, including: financial reports, press

publications, industry magazines, directories,

financial databases and expert opinions.

Views presented in this report reflect solely the

independent and unbiased opinion of Inteliace

Research and authors.

All due care has been taken in the production of this

report. However, Inteliace Research does not accept

any responsibility or liability for any omissions or

inaccuracies of the information contained in this

publication.

This report is copyrighted. Any distribution, storage,

replication and usage is restricted to Inteliace

Research clients only. In case of any doubt please

contact us at: info@Inteliace.com

About Inteliace Research

Inteliace Research is an independent and privately

owned research firm based in the heart of Eastern

Europe in Warsaw / Poland.

Our company specializes in value-added research

services and tailored business intelligence solutions.

Through our customized research services we help our

clients to better understand their customers,

competitors and overall market dynamics.

The lead researcher and founder of Inteliace Research

is Marcin Mazurek.

Our contact details:

Inteliace Research

Foksal 17B / 31,

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Tel. +48 22 408 66 20, Tel. +48 502 512 178

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mail: info@Inteliace.com

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Visit http://www.inteliace.com for more details

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BANK OUTLETS DENSITY IN POLAND (1/3)GĘSTOŚĆ SIECI PLACÓWEK BANKOWYCH W POLSCE (1/3)

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Południowa oraz centralna Polska są najgęściej pokryte siecią placówek bankowych na km2

Źródło/Source: Inteliace Research

Średnia / Average= 58

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BANK OUTLETS DENSITY IN POLAND (3/3)GĘSTOŚĆ SIECI PLACÓWEK BANKOWYCH W POLSCE (3/3)

Źródło/Source : Inteliace Research

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Minimum: 126

Maximum: 947

MedianaMedian (443) Number of bank outlets per 1 million

inhabitants varies a lot on county level

Na poziomie powiatów gęstość placówekjest bardzo zróżnicowana

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GE MONEY BANK – OVERVIEW

7.4 8.3 9.1

2003 2004 2005

10.9

1.6

AssetsPLN billion

* Although Expander is distributing products from various banks, GE offer / for example mortgage/ is reported to be favoured** Compound Annual Growth RateSource: Inteliace Analysis

CAGR**

Concept Description Results

1.6 1.7

Timeline

History & Background

LoansPLN billion

Net ProfitPLN billion

Target Clients

Products

Channels

20.4 26.7 22.8ROE (%)

Market share(%)

6.6 7.6 8.6

2003 2004 2005

0.14

0.30 0.32

2003 2004 2005

14.2

51.2

• Affluent individuals and professionals looking for mortgage. Valuing quick processing and flexibility, sometimes not fulfilling lending criteria set by other banks (for example job contract or own funds level)• Mass market clients looking for simple and quick consumer loans

Only lending products on offer:• mortgage• refinancing loan• credit cards• installment loans • cash loans• car loans

• GE money bank - 48 branches• GEpard, ~200 used car dealers• Dobry Kredyt consumer finance – 12 outlets and ~1000 POS• Expander - 33 branches - financial products distributor*

• In 1995, GE group purchased a small regional bank: „Solidarność Chase D.T. Bank”. Bank was rebranded soon to GE Capital Bank.

• In 1998, GE group purchased another small bank (PAMBank)and converted it to a mortgage specialist: GE Bank Mieszkaniowy

• In 2004, GE group acquired POS lending specialist :Chrobry with a network of ~1000 POS. Chrobry was renamed to: Dobry Kredyt

• In 2004 , a used car dealers network was created under the GEpard brand, being the main channel for car loans sales

• As of Jan. 2005, all GE activities in Poland wereconsolidated under one roof: GE Capital bank

Shareholders

• Top notch risk management and collection• High performing sales staff• Fast loan processing and flexibility• High margins • Control over distributors (GEpard, Expander, Dobry Kredyt)• Advanced cross-selling between segments

As of March 2006

99

1

General Electric Company

Other

http://www.inteliace.com/en/00137_Insurance_market_in_Poland_2015_2017.html

http://www.prlog.org/12468907-polands-13-billion-insurance-sector-set-to-grow-in-2015.html

http://www.live-pr.com/en/poland-s-13-billion-insurance-sector-r1050583465.htm