PZU GROUP STRATEGY
The PZU Group’s objectives are to maintain its leadership in the Polish insurance market and
to enhance returns on equity for its shareholders. The Management Board also intends to
diversify its sources of income by analyzing new business opportunities in Poland and
opportunities related to international expansion. PZU intends to pursue these objectives by
focusing on the following strategies.
Maintaining and increasing the PZU Group’s share in the market by focusing on the
profitability of the basic operations. The PZU Group positions its product portfolio,
distribution channels and principles of risk assessment and acceptance to capitalize on
attractive growth prospects in its key markets. The PZU Group approaches distinct segments
of the Polish insurance market differently depending upon its market share and profitability
for individual products.
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With respect to segments in which the PZU Group has a high market share and a
satisfactory profitability level, such as group life insurance, continued individual
insurance, individual motor insurance, and agricultural insurance, the PZU Group
intends to develop its range of products in order to maintain its leading position and
the profitability of its products.
As regards the group life insurance and individual continued insurance, the strategy
of the PZU Group assumes that new clients will be solicited, in particular SMEs, and
that the number of the products sold to current clients will increase. As regards
individual motor insurance, the aim of the PZU Group is to halt the loss of market
share and maintain profitability by applying an active pricing policy aimed at retaining
key group clients in selected categories of products, introducing new incentive
programs for agents and developing an attractive product for car dealers. The PZU
Pomoc roadside assistance service is an important element of this strategy. It allows
the PZU Group to offer an outstanding level of service, and, as a result, maintain a
product advantage in the market and the loyalty of key client groups. PZU Pomoc is
also a platform which facilitates the soliciting of new clients despite growing
competition. In selected market segments, such as agricultural insurance (in which
the PZU Group has almost an 80% market share) and third party liability insurance of
selected professional groups, the PZU Group’s aim is to maintain its position as a
leader, as well as its high level of profitability. The PZU Group has undertaken several
initiatives with the aim of maintaining its market share in products earmarked for
SMEs who are a group of clients with potential for rapid growth for both group life
insurance and property and casualty insurance.
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With respect to the corporate motor insurance segment, in which the PZU Group
incurred a loss of approximately PLN 424 million in 2009, the goal is to restore
profitability by 2012. In order to achieve this goal, the PZU Group intends to
implement a more restrictive pricing policy (in 2009, the average motor insurance
product prices for corporate clients increased by approximately 20%) and apply
proper risk evaluation and acceptance policies. The PZU Group has already
implemented an incentive scheme for employees, promoting the 5 profitability of the
segment. By focusing on restoring the segment’s profitability, the PZU Group accepts
that it may lose market share. However, the PZU Group believes that the adopted
strategy will ensure higher returns for the shareholders. With respect to other
insurance products dedicated to corporate clients, including third party liability
insurance for hospitals and property insurance products, the PZU Group intends to
focus on improving profitability by applying a more stringent approach to pricing and
risk acceptance.
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With respect to those market segments in which the PZU Group has a lower share
than desired, or which are characterized by lower growth potential, such as individual
life insurance, individual property insurance and subsidized farm insurance, the goal
of the PZU Group is either to capture a higher share of the market (with respect to
individual life insurance), or to grow along with the market (with respect to individual
property insurance and farm insurance riders), building on its large client base,
developed distribution network and using various other initiatives, such as crossselling to motor insurance clients and clients covered by group life insurance.
Implementation of an effective, client-oriented operating model. The PZU Group intends
to implement a ‘‘Target Operating Model’’ aimed at refocusing the organization on the clients’
needs and satisfaction, cost effectiveness and high quality services. The Management Board
intends to reduce the costs of the PZU Group while improving the level of client services.
Additionally, the Management Board intends to promote a results-oriented corporate culture
and maximize the effectiveness of the PZU Group.
The Management Board assumes that these goals can be achieved by implementing a
number of initiatives, such as the centralization of processes in the areas which have, up to
now, been delegated, and the unification of the functions which are common across the
whole PZU Group, reducing the level of employment and investing in new technologies, in
particular in the implementation of effective client service processes. These initiatives will
include, among other things, centralization of the claims handling process for life insurance,
centralization of finance and sales support functions, automation of accounting systems and
implementation of modern client contact systems, migrating contacts with group life
insurance clients to an Internet platform, implementation of electronic data handling
concerning executed policies and electronic payment processing.
In relation to these initiatives, the PZU Group has recently announced plans to reduce staff
numbers by approximately 4,000 full-time positions by 2012. These redundancies
(approximately 70% of the planned redundancies) will mainly affect the finance, accounting
and claims handling divisions, in which the average monthly salary is between three and four
thousand PLN.
The administration expenses ratio calculated jointly for the two core companies of the PZU
Group (PZU and PZU Życie) in 2009 was 11.4%, approximately 40% higher than in a
selected group of international peer insurance groups.
The Management Board expects that the planned implementation of the new operating
model will result in a significant increase in employee productivity and a decrease in the
administration expenses ratio. For example, the Management Board estimates that in the
property insurance services (excluding motor insurance), the efficiency may improve by as
much as 28%, in the finance and accounting function by approximately 60%, and in the life
insurance claims handling by approximately 36%. The Management Board believes that all
of these actions will significantly reduce costs, as well as improve the PZU Group’s client
service process.
Optimization and enhancement of the effectiveness of the distribution network. The
PZU Group’s existing distribution channels require improvements in order to increase their
effectiveness.
Since 2008, the PZU Group has been implementing a number of programs aimed at
improving the effectiveness of its exclusive agent network in order to implement joint sales
models for PZU SA and PZU Życie SA. These programs facilitated a restructuring of a
chaotic and barely manageable network of exclusive agents which used unclear and
inconsistent incentive and support systems and lacked clearly defined career paths for the
agents. These programs have also divided the agents into segments based on transparent
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principles and standardized the incentive system, training and support appropriate for
particular levels of professional development. Additionally, new IT systems have facilitated
the work of property insurance agents and the reporting functions across the whole sales
network. In the forthcoming years, the PZU Group intends to enhance its management of the
agency network, intensify cross-selling efforts and develop non-financial incentive systems.
While restructuring the operating model of its agency network, the PZU Group also intends to
improve the effectiveness of agents by enhancing their qualifications and motivation and
developing a new recruitment model which will offer attractive start-up conditions and
proactive and regular development.
The PZU Group is also restructuring its outlet network by modernizing and optimizing
locations, standardizing interior design, merging and unifying the PZU and PZU Z˙ ycie
outlets (which, at present, each usually sell products from one of the insurance segments
only), and optimizing the sales processes and customer services. The modernized outlets
will be sales-focused and their location pattern will reflect the targeted model for the PZU
Group’s physical presence across Poland. A new agency model is presently being tested
and will complement the physical representation of the PZU Group across Poland.
In other distribution channels, the PZU Group is undertaking the following actions: (i) in the
multiagency channel, it is developing an incentive system and terms of cooperation while
continuing to prioritize the exclusive agents’ channel; (ii) in its relations with brokers, it is
maintaining a balance between profitability of the portfolio built through this channel with
respect to property insurance and maintaining partner terms of cooperation with respect to
life insurance; (iii) in its relations with car dealers, it is intensifying relations based on central
agreements with general importers which provide for an attractive commission system and
participation in the PZU Group’s repair network; (iv) in relation to sales through leasing
companies, the PZU Group aims to maintain a balance between the volume and profitability
of the portfolio; (v) in relation to the bancassurance channel, the PZU Group is focusing on
the profitability of the low-margin savings products and stimulation of the sale of protection
products; (vi) in relation to the direct channel, the PZU Group has built this channel which
may be developed further should the patterns of client behavior change in a manner which
could result in an increase of this channel’s share in total sales; and (vii) in relation to the
automatic renewal channel, the PZU Group is focusing on maintaining a high client retention
ratio.
Additionally, the PZU Group is taking actions aimed at continuing the development and use
of the sales potential offered by attractive strategic alliances with entities which have broad
client bases (e.g. sale of travel insurance in cooperation with Polskie Linie Lotnicze LOT SA).
Pursue emerging business opportunities in Poland. The PZU Group is monitoring the
market and intends to expand its client groups and product lines where favorable
demographic trends or emerging business or regulatory trends could lead to enhanced
profitability. For example, the Polish markets for health insurance and voluntary pension
insurance are two potentially very attractive markets which may expand in the near future if
the regulatory environment changes favorably. The Management Board believes that with its
market position and financial strength, the PZU Group can seize opportunities in these
growing markets and capture a significant market share for these products and services.
Pursue opportunities for international expansion. While implementing its core strategy in
Poland, the PZU Group is considering increasing and diversifying its revenues through
acquisitions of selected entities engaged in insurance activity in Central and Eastern Europe.
The PZU Group’s market position, its know-how and expertise in the evaluation of risks
associated with insurance products, as well as the PZU Group’s financial strength and the
expertise of its Management Board, form a solid platform for capital investments in attractive
developing markets. In assessing potential acquisition targets, the Management Board will
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exercise utmost care and diligence. The PZU Group’s preference is to acquire an entity or an
organized group of entities conducting business in several countries of Central and Eastern
Europe, managed by experienced executive staff well versed in international standards,
which would allow the PZU Group’s management personnel to focus on its central Polish
market. Any potential foreign acquisitions will also depend on the available surplus of capital
and the ability to finance potential transactions. As of the date of this Offering Circular, the
PZU Group had no defined targets for potential acquisitions.
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