Insurance - factors that may affect the PZU Group in 2022

Non-life insurance in Poland

In addition to chance events such as sudden floods, hail, torrential rain, hurricanes, cyclones, droughts, spring ground frosts, which due to the ongoing climate change are becoming more and more unpredictable and contribute to increasing loss rates in the property insurance sector, the following hazards also exist:

• persisting COVID-19 pandemic and its socio-economic consequences, in particular deterioration of the financial standing of businesses and employees from industries affected by the restrictions and the related problems with maintaining and paying for the policies;
• high uncertainty as to the growth of new car sales, mainly in the dealership channel and financed by leasing companies, which may result in lower sales of motor insurance;
• increase in the prices of spare parts affecting claims handling expenses due to the depreciation of the Polish zloty against the euro and the limited availability of spare parts (due to COVID-19), which affects claims handling costs;
• reduced demand for voluntary insurance due to a higher inflation rate, higher unemployment and a decline in employment, which may be linked to the continuing COVID-19 pandemic;
• slower economic growth in Poland – the more challenging financial standing of companies may result in elevated credit risk, a higher loss ratio on the financial insurance portfolio and deceleration in the pace of gross written premium growth;
• changes in trends and behavior of client seeking customized proposals and an electronic, swift conclusion of agreements and handling insurance, forcing insurers to adapt to these new expectations rapidly;
• increase of insurance fraud as a result of the more difficult situation in numerous industries, increasing unemployment and lower employment rates;
• introduction of additional regulations or financial burdens on insurance undertakings.

Life insurance market in Poland

The main risk factors include:

• successive waves of the COVID-19 pandemic and their social and economic consequences, in particular deterioration of the financial standing of businesses and employees from industries affected by the restrictions and the related problems with maintaining and paying for the policies, and the higher death rates among Poles;
• inflation and its impact on the clients’ financial standing and consequently purchasing capacity;
• demographic changes and the aging society and the ensuing changes in the mortality and fertility levels;
• constant price pressure in group insurance and the battle for client ownership (and client data), thereby cutting the insurer’s margins, reducing the quality of the product and fostering entry and exit obstacles for clients to overcome with independent intermediaries;
• softer conditions on the capital markets deteriorating the attractiveness of products, especially unit-linked products;
• negative effect of higher interest rates, increasing inflation and maintenance expenses (prices of energy, goods and services) on sales of mortgage/cash loans and linked insurance products;
• changes in client trends and behaviors towards customization of the offering;
• impact of new EIOPA regulations for the insurance market in the European Union;
• KNF decision on product intervention in the unit-linked life insurance segment, which came into effect on 1 January 2022;
• the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies.

Insurance in the Baltic States and Ukraine

In addition to chance events such as sudden floods, hail, torrential rain, hurricanes, cyclones, droughts, spring ground frosts, which due to the ongoing climate change are becoming more and more unpredictable and contribute to increasing loss rates in the property insurance sector, the following hazards also exist:

• geopolitical tensions, in particular the Russia-Ukraine war, which has a direct impact on the possibility of conducting insurance operations in Ukraine. In the face of an attack by the armed forces of the Russian Federation and the declaration of martial law by Ukraine, the Ukrainian companies of the PZU Group have implemented appropriate procedures prepared for such circumstances. In the Polish PZU headquarters operates a crisis management team with members of the board and senior management and representatives of Ukrainian subsidiaries, which monitors the situation on an ongoing basis and makes decisions on preventive actions;
• slowdown of economic growth in the Baltic States and Ukraine – the more challenging financial standing of companies may result in elevated credit risk, a higher loss ratio on the financial insurance portfolio and deceleration in the pace of gross written premium growth in both motor and property insurance;
• the protracted period of the COVID-19 pandemic and its social and economic consequences, in particular deterioration of the financial standing of businesses and employees from industries affected by the restrictions;
• increase in the prices of spare parts affecting claims handling expenses as a consequence of their limited availability caused by the COVID-19 pandemic;
• resumption of price pressure in motor insurance, i.e. competition for clients through an active pricing policy applied by competitors;
• changes in trends and behavior of client seeking customized proposals and an electronic, swift conclusion of agreements and handling insurance, forcing insurers to adapt to these new expectations rapidly;
• case law concerning the amounts of general damages paid in cash for the suffering sustained (legislative amendments in Lithuania) under the TPL insurance held by the owners of motor vehicles to the closest family members of persons who have died;
• increase in insurance fraud cases as a result of the more difficult situation in numerous industries causing growing unemployment;
• coming into force of further regulations or financial burdens on insurance undertakings;
• geopolitical tensions, in particular the escalation of the conflict between Russia and Ukraine, which may direct impact the conduct of insurance business in Ukraine.