Disclosure under Regulation (EU) 2020/852 of the European Parliament and of the Council (“Taxonomy”)

• percentage share of business activities in insurance other than life insurance that is not eligible to participate in the system

Item 1 in Attachment XI: contextual information pertaining to quantitative indicators, including the scope of assets and activities covered by the key performance indicators, information regarding data sources and limitations

The standalone and consolidated indicators were developed in accordance with the regulations set forth in the Delegated Act and in Delegated Regulation 2021/2139³ (“Delegated Regulation”), and by using the recommendations set forth in the supplementary documents “FAQs: How should financial and non-financial undertakings report Taxonomy-eligible economic activities and assets in accordance with the Taxonomy Regulation Article 8 Disclosures Delegated Act?” published by the European Commission in December 2021 (Q&A part 1) and “Draft Commission notice on the interpretation of certain legal provisions of the Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation on the reporting of eligible economic activities and assets” published by the European Commission in February 2020 (Q&A part 2). The regulations and clarifications pertaining to insurance undertakings were applied in standalone and consolidated indicators alike. In particular, since the PZU Group is a mixed group (it consists of financial companies and non-financial companies) and conducts diversified activity according to Q.4. Q&A part 1, the taxonomic disclosures have been construed from the vantage point of an insurance undertaking.

In accordance with the guidelines cited above, the indicators were calculated on the basis of the standards used in financial statements, namely to calculate the standalone indicators the Polish Accounting Standards were applied and to calculate the consolidated indicators the International Financial Reporting Standards were applied.

Consolidated indicators refer to the financial companies belonging to the PZU Group, where the scope of consolidation is, in accordance with the assumptions quoted above, identical to the one used in the consolidated financial statements⁴, except for banks where assets have been prudentially consolidated in accordance with the CRR Regulation.

The standalone and consolidated indicators are divided into two groups according to the Delegated Act: (a) investment policy indicators and (b) insurance activity indicators.

Indicators pertaining to investment policy

Indicators 1-4 are investment policy indicators. According to motive (10) of the Delegated Act the first group of indicators should pertain to the investment policy of insurance and reinsurance undertakings in terms of the accumulated assets originating from the insurance activity they conduct; these indicators should demonstrate the percentage share of assets invested in activities complying with the system in all assets held.

“Exposure” therefore is in the case of a standalone indicator applicable to PZU understood as the entirety of the funds originating from insurance activity. In a balance sheet sense, this is the sum total of investments save for investments in subordinated entities. The “look through” approach has been used, i.e. in the event of investments in investment funds the investments of the investment funds in which PZU holds participation units have been analyzed. The sum total of the investments for which the “look through” approach has been used is higher than the value of the participation units in these funds carried in the financial statements - the difference follows chiefly from the settlements of these investment funds.

The term “exposure” (for the purposes of PZU’s consolidated indicator) incorporates the distinct nature of the activity and business conducted as part of the PZU Group. In particular, this is significant in insurance activity related to investing money for investment and banking purposes related to lending activity. The following approach has been adopted for the purposes of calculating the consolidated indicators:

• in the case of the PZU Group net of banking activity - “exposure” is understood to mean investment financial assets at their net carrying amount save for investments in life insurance where the policyholders bear the risk and own and investment properties;
• in the case of the PZU Group’s banking activity - “exposure” is understood to mean credit, lease, factoring receivables, corporate bonds and equity interests at their net carrying amount.

For both the standalone and consolidated non-banking activities ratio, the look through approach was applied to most of the exposures defined above, but this was not possible for approximately 2% of the exposures for the standalone ratio and 3% of the consolidated ratio. These exposures have been classified in indicator 4. Indicators pertaining to investment activity do not constitute obligatory disclosures, but rather estimates. For they are not based on companies’ disclosures to which PZU and the PZU Group have exposure on account of the absence of such information – companies forming the subject of an investment are obligated to produce information on whether and to what extent their activities are eligible to be included in the system at a later date.

For the purposes of calculating indicator 1, activity that is eligible to be in the system has been estimated for the “exposure” to companies subject to the obligation of publishing non-financial data according to Directive 2013/34 on the basis of the business activity codes (NACE), on the basis of publicly available data, deeming those companies to be eligible to participate in the system if their principal business activity code (NACE) means the business activity described in the delegated acts adopted pursuant to article 10 section 3, article 11 section 3, article 12 section 2, article 13 section 2, article 14 section 2 and article 15 section 2 of Regulation (EU) 2020/852, regardless of whether such business activity satisfies any or all technical eligibility criteria specified in those delegated acts.

For the purposes of calculating indicator 2, exposure is the value of investments in companies subject to the obligation of publishing non-financial data according to Directive 2013/34 if the principal business activity code (NACE) does not fall within the business activity described in the delegated acts adopted pursuant to article 10 section 3, article 11 section 3, article 12 section 2, article 13 section 2, article 14 section 2 and article 15 section 2 of Regulation (EU) 2020/852, regardless of whether such business activity satisfies any or all technical eligibility criteria specified in those delegated acts.

Indicator 3 is the percentage share of the exposure to central governments, central banks and supernational issuers in total assets.

The analysis for the calculation of indicators 1 and 2 and the decisions on eligibility or the lack thereof of companies for participation in the system were made solely for the companies covered by Article 19a and 29a of Directive 2013/34/EU; exposures to companies not subject to non-financial reporting according to this directive have been listed separately as indicator 4.

Indicator 4 is the percentage share of an exposure to businesses that are not subject to the obligation of publishing non-financial information according to Article 19a or 29a of Directive 2013/34/EU in total assets.

Indicators pertaining to insurance activity

Indicators 5-6 pertain to insurance activity. According to motive (10) of the Delegated Act, the second group of indicators for insurance undertakings should specify what percentage share of overall activity in the scope of insurance other than life insurance is activity in the scope of insurance other than life insurance related to adaptation to climate change, run in accordance with the Delegated Regulation. “Activity in a scope of insurance other than life insurance” is understood to mean gross written premium on non-life insurance (Group II) in accordance with attachment X of the Delegated Act. In turn, “activity in a scope of insurance other than life insurance associated with adaptation to climate change run in accordance with the Delegated Regulation means the gross written premium originating from the performance of the following non-life insurance services related to insuring the climate risk specified in appendix A to attachment II (i.e. according to attachment Ii section 10.1 of the Delegated Regulation):

• medical service expense insurance;
• income protection insurance;
• employee insurance;
• motor vehicle third party liability insurance;
• other motor insurance;
• marine, aviation and transport insurance;
• insurance against fire and other damage to property;
• assistance insurance.

To determine the percentage of activity eligible for participation in the system and calculate the indicators in a manner providing complete information the PZU Group has reviewed all insurance products belonging to Class II to draw up a product classification and separate those that provide insurance cover in the event the climate risks enumerated in appendix A to attachment II of the Delegated Regulation occur. Those products that belong to one of eight lines of business enumerated in the Delegated Regulation and cited above and that cover at least one of the 28 risks enumerated in the appendix, considered to belong to the groups of constant or acute risks related to temperature, wind, water or earth are deemed to be products that are eligible to participate in the system. All risks products were also deemed to be eligible to participate in the system. Then, by using management systems information pertaining to the gross written premium by category was assigned. A similar estimate was drafted for inward reinsurance premiums; those inward reinsurance premiums were deemed to be eligible to participate in the system that refer to products that would be deemed to be eligible to participate in the system.

To depict the picture of the PZU Group as fully as possible in accordance with the Taxonomy, the indicators were calculated in two approaches: the standalone approach for PZU and the consolidated approach for the entire PZU Group, i.e. for all PZU Group companies that do business in non-life insurance: PZU, LINK4, TUW PZUW, Lietuvos Draudimas, PZU Branch in Estonia, AAS Balta and PrJSC IC PZU Ukraine. In both cases gross written premium is understood to refer to direct and indirect business. The sum total of gross written premium for non-life insurance that is included in the denominator of both indicators complies with the values carried in the financial statements for 2021 (gross written premium for PZU) and the consolidated financial statements for 2021 (for the PZU Group).

Item 3 in attachment XI: Description of compliance with Regulation (EU) 2020/852 in a financial company’s business strategy, product design processes and cooperation with clients and business partners.

I. Description of compliance with Regulation (EU) 2020/852 in a financial company’s business strategy

The PZU Group Strategy in 2021-2024 “Potential and Growth” incorporates sustainable development factors indicating that the measure of the PZU Group’s success is embodied not just by its financial performance but above all by generating that performance in a sustainable manner.

For the first time in history PZU SA and PZU Życie SA also adopted the ESG Strategy “Balanced Growth” in 2021-2024 defining the approach to management, expected performance and the future prospects in a manner that reflects the financial, social, environmental and managerial context in PZU’s business.

The PZU Group’s ambitions related to sustainable development have been specified in three pillars directly relating to the three ESG factors:

• #Trusted Partner in green transformation (E)
• #Better quality of life (S)
• #Responsible organization (G)

One of the benefits ensuing from adopting both strategies is the ability to prepare PZU effectively to implement new legal regulations pertaining to ESG, including the Taxonomy. The taxonomy has been directly cited in the ESG Strategy “Balanced Growth as one of the regulatory components pertaining to sustainable development on which the activities of both companies will be predicated. The strategies have not described the objectives referring directly to the Taxonomy; however, the Taxonomy has been noted as the regulatory basis for the further operation of the companies.

The PZU Group places great emphasis on reducing the adverse impact exerted by its business activity on the climate and environment and is also striving to anticipate the impact of climate change on its business. It supports the sustainable transition of the economy relying on business analyses, domestic and international legal regulations and the guidelines of institutions such as the UN, EU and the Organization for Economic Cooperation and Development.

Discharging the obligations stemming from the Taxonomy is rooted in the first - environmental pillar of the ESG Strategy: #Trusted Partner in green transformation. We appreciate that it is necessary to switch to a low emission economy to stop climate change. We want to partner with firms and businesses that are undergoing energy transition and that is why we have planned to pursue key activities in the following areas:

• product area (PZU Group developing an insurance offer supporting energy and climate transition),
• investment area (responsible investor supporting sustainable transition),
• operating activity (green organization operating on the basis of sustainable decision-making and governance processes).

II. Product design processes – in 2021 PZU SA created new product solutions taking into consideration evolving environmental needs

The PZU Group appreciates that it is necessary to switch to a low emission economy to stop climate change. That is why it is expanding the offer for businesses investing in renewable energy sources and marketing products that will support decarbonization: among others, low emission transport, environmentally-friendly photovoltaic installations, heat pumps, small and large wind farms and services facilitating support for clients pursuing decarbonization.

• In 2021 PZU SA rolled out two new insurance products on the market for corporate clients – PZU Wind Power and PZU Solar Power. These products protect wind power plants and photovoltaic installations in the event of a failure, damage or destruction. These policies also give clients protection against civil liability and loss of profit caused by material damages. The entire wind farm is insurance under PZU Wind Power, including the gondola, tower, foundations, cabling, accompanying equipment. The insurance under the PZU Solar Power product spans the entire photovoltaic installation, including the panels, structure, internal cabling, inverters and accompanying equipment. Detailed information: www.pzu.pl/dla-firm-i-pracownikow/majatek-firmy-i-oc/majatek/pzu-energia-wiatru-i-pzu-energia-slonca.
• The offer of PZU Advisor is an offer targeting commercial undertakings in the SME segment whose purpose is to protect the assets of these companies. The insurance cover protects the following installations and devices:
• photovoltaic installations, including photovoltaic farms;
• wind farms (windmills);
• biogas-fired plants – devices for generating gas energy from biomass;
• sewage treatment plants.

The insurance also covers third party property used by a given company to render services and may be purchased by firms that install photovoltaic panels for retail customers. The offering for SMEs also includes third party liability insurance for damage to the natural environment (covering the costs of removing, e.g. substances leaked into the soil). Detailed information: www.pzu.pl/dla-firm-i-pracownikow/majatek-firmy-i-oc/majatek/pzu-doradca.

• PZU Eko Energia – is a product that protects devices generating energy from renewable sources and also protects owners of photovoltaic installations against the risk of power failures or lower effectiveness in electricity production. This product targets the owners of households, small and medium-sized enterprises and agricultural farms that use photovoltaic cells, solar thermal collectors or heat pumps to produce energy for their own needs. This insurance is available in three options: Detailed information: www.pzu.pl/dla-ciebie-i-rodziny/majatek-podroze-oc/dom-i-mieszkanie/eko-energia.
• PZU offers a new scope of motor own damage insurance for the owners of electrical vehicles that covers damages to chargers, including a wallbox and charging wires and the battery. It is a fleet offer for corporate clients. Detailed information: www.media.pzu.pl/informacje-prasowe/szczegoly/PZU_rozszerzyl_ubezpieczenie_AC_dla_pojazdow_elektrycznych.
• Insurance offering for sectors exposed to the highest climate risk (e.g. the agriculture industry), which entails protection against the result of acts of fate such as flooding or minor flooding, cyclone, storms, snow fall or hail and torrential rain. Additionally, the environmental guarantee is a form of protection for companies whose activities may exert an adverse impact on the environment (e.g. chemical plants). 
• As part of its insurance for loss of profit, PZU protects businesses whose profits decline, for instance, as a result of damage to their assets caused by natural catastrophes (such as fire, flood, cyclone or other random events). Additionally, extended clauses are in place for commercial undertakings holding third party liability insurance that covers damage to the environment losses (extending the scope of third party liability insurance for damages arising in connection with the release of hazardous substances into the air, water or soil; extending the scope of liability to include damage to the environment). Detailed information: www.pzu.pl/dla-firm-i-pracownikow/majatek-firmy-i-oc/majatek/ubezpieczenie-utraty-zysku.

III. Cooperation with suppliers and business partners

Sustainable development issues are also important in relations with the PZU Group’s clients and have been defined in the business strategy.

The PZU Group supports environmental protection initiatives. It also wants to support entities that are undergoing an energy transition by taking the following into account:

• financial market participants – the PZU Group is extending the offering of mutual funds to include ESG funds, it is developing a long-term strategy to develop its sustainable portfolio and it is consistently expanding its investments in the green sectors;
• retail clients – the PZU Group is developing its sustainable insurance offer customized to their individual needs;
• corporate clients – the PZU Group supports entities undertaking measures conducive to sustainable energy transition;
• non-governmental organizations – the PZU Group wants to be a partner in social, economic and climate activities.