PZU Group’s asset and liability structure

As at 31 December 2018, the PZU Group’s total assets were PLN 328,554 million, up PLN 11,096 million compared to the end of 2017.

Assets

As at 31 December 2018, the main part of the Group’s assets took the form of loan receivables from clients. They represented 55.4% of total assets and amounted to PLN 182,054 million, having risen by PLN 12,597 million from the end of 2017.

The second largest asset category were investments (investment financial assets, investment properties and financial derivatives). They totaled PLN 105,849 million and were down PLN 8,903 million versus the end of last year. They represented 32.2% of the Group’s total assets versus 36.1% at the end of 2017. The decline in the value of investments concerned Pekao and was related to the lower volume of the liquidity portfolio. Excluding banking activity, the investment portfolio expanded on business development (higher receipts from proceeds from premiums) and the rising value of the investments.

The PZU Group’s receivables, including receivables under insurance contracts and current income tax receivables were PLN 6,343 million and represented 1.9% of its assets. For the sake of comparison, at the end of 2017 they stood at PLN 9,096 million (2.9% of the Group’s assets) and their decrease was caused mainly by the drop in outstanding transactions on financial instruments and margin calls.

Non-current assets, i.e. intangible assets, goodwill and property, plant and equipment were presented in the statement of financial position at PLN 10,235 million. They constituted 3.1% of assets. Their decline of PLN 325 million versus the end of 2017 resulted from, among others, amortization of intangible assets identified as a result of the acquisition of shares in Bank Pekao by PZU and depreciation of tangible non-current assets.

As at 31 December 2018, the PZU Group held PLN 17,055 million of cash and cash equivalents (5.2% of assets). At yearend 2017, this value was PLN 8,239 million and the movement occurred mainly in the cash accumulated by Bank Pekao in the Central Bank under reserve requirement.

The assets held for sale stood at PLN 1,147 million and moved up PLN 830 million compared to the previous year due to changes in the classification of a portion of the investment property portfolio.

PZU Group’s asset structure (in %)

Equity and liabilities

At the end of 2018, consolidated equity stood at PLN 37,407 million, down from the end of 2017 by PLN 153 million. The value of non-controlling interests fell by PLN 479 million to PLN 22,482 million versus last year, among others, in connection with the dividend payment by Pekao of PLN 2,074 million, with PLN 1,659 million of that being the dividend attributable to non-controlling interests, as well as the effect of IFRS 9 implementation. The declines were partially offset by the result generated by Alior Bank and Pekao attributed to non-controlling shareholders amounting to PLN 2,155 million. Equity attributable to the parent company’s shareholders rose by PLN 326 million compared to the end of the previous year – as an effect of the net result attributable to the parent company generated in 2018 totaling PLN 3,213 million, partially offset by of the distribution of profit for 2017, including the allocation of PLN 2,159 million as a dividend and the impact exerted by applying IFRS9.

The largest item of equity and liabilities at the end of 2018 were financial liabilities representing 71.9%.

The value of this item reached PLN 236,316 million and included in particular:

• l client deposits liabilities in the amount of PLN 206,909 million (an increase in current and term deposits in Pekao and Alior Bank by PLN 9,500 million compared to December 2017);
• liabilities on the issue of own debt securities totaling PLN 12,009 million, including:
• PLN 5,922 million on bonds, of which EUR 850 million are Eurobonds issued by PZU Finance AB, a wholly-owned subsidiary; the balance was up by PLN 2,101 million over 2017, chiefly due to Pekao’s issue of bonds;
• PLN 4,542 million on certificates of deposit issued by Bank Pekao and Alior Bank;
• PLN 1,545 million on covered bonds issued by Bank Pekao.
• subordinated liabilities of PLN 6,061 million. The balance rose from the end of 2017 by PLN 742 million chiefly due to the issue of subordinated bonds by Pekao in October 2018 for PLN 750 million. SECTION 8.3 DEBT FINANCING

As at the end of 2018, technical provisions totaled PLN 45,839 million, which accounted for 14.0% of equity and liabilities (PLN +1,281 million compared to the end of 2017). The movement in this item resulted in particular from:

• higher provision for unearned premiums in non-life insurance resulting mainly from growing sales of insurance in Poland;
• remeasurement of provisions, mainly in motor insurance, for claims for general damages due to being in a vegetative state;
• lower provisions in unit-linked life insurance products due to the negative result on investment activity, and additionally the level of payouts and benefits in the product portfolio exceeded for the first time the amount of client contributions;
• higher mathematical provisions in continued business associated with the indexation of amounts insured and the higher average age of the insureds.

The balance of other liabilities as at 31 December 2018 was PLN 7,407 million compared to PLN 9,096 million at the end of 2017. The decrease pertained in particular to liabilities on account of outstanding transactions on financial instruments and liabilities to banks for payment documents cleared by the National Clearing House.

Structure of PZU Group’s equity and liabilities (in %)

Cash flow statement

At the end of 2018, net cash flow was PLN 8,774 million, up PLN 3,431 million versus the previous year. This increase pertained, in particular, to net cash flow on investing activity.

Material off-balance sheet line items

At the end of 2018, the value of contingent liabilities was PLN 57,667 million, having fallen by PLN 1,311 million versus last year. The value of contingent liabilities granted to the clients of Alior Bank and Bank Pekao was PLN 56,436 million. The balance of the PZU Group’s contingent liabilities consisted in particular of PLN 13,211 million in overdraft and credit cards contingent liabilities , PLN 28,523 million in contingent liabilities related to tranche-based credits and loans and PLN 7,682 million in granted guarantees.

Moreover, the balance of contingent liabilities included guarantees for the underwriting of securities totaling PLN 4,470 million.