1. Introduction

Compliance statement

These consolidated financial statements of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group (“consolidated financial statements” and “PZU Group”, respectively) have been prepared in line with the International Financial Reporting Standards as endorsed by the European Commission (“IFRS”), published and in force as at 31 December 2018.

Period covered by the statements

These consolidated financial statements cover the period of 12 months from 1 January to 31 December 2018.

Approval of the statements

These consolidated financial statements were signed and authorized for publication by the Management Board of Powszechny Zakład Ubezpieczeń Spółka Akcyjna (“PZU”, “parent company”) on 12 March 2019 and will be subject to approval by the shareholder meeting of Powszechny Zakład Ubezpieczeń Spółka Akcyjna.

Functional and presentation currency

PZU’s functional and presentation currency is the Polish zloty. Unless noted otherwise, all amounts presented in these consolidated financial statements are stated in millions of Polish zloty.

The functional currency of the companies domiciled in Ukraine is the Ukrainian hryvnia, the euro is the functional currency of the companies domiciled in Lithuania, Latvia and Sweden and pound sterling – of the company domiciled in the United Kingdom.

Going concern assumption

These consolidated financial statements have been drawn up under the assumption that PZU Group companies remain a going concern in the foreseeable future, i.e. in the period of at least 12 months after the end of the reporting period. As at the date of signing these consolidated financial statements, there are no facts or circumstances that would indicate a threat to the ability of PZU Group companies to continue their activity in the period of 12 months after the end of the reporting period as a result of an intentional or an induced discontinuation or a material curtailment of their hitherto activity.

Discontinued operations

In 2018, the PZU Group companies did not discontinue any material type of activity.

Glossary

The most important terms, abbreviations and acronyms used in the consolidated financial statements are explained below.

Company names

AAS Balta – Apdrošināšanas Akciju Sabiedrība Balta. Alior Bank – Alior Bank SA.

Bank BPH – Bank BPH SA.

Elvita – Przedsiębiorstwo Świadczeń Zdrowotnych i Promocji Zdrowia ELVITA – Jaworzno III sp. z o.o. EMC – EMC Instytut Medyczny SA.

Alior Bank Group – Alior Bank with its subsidiaries: Alior Services sp. z o.o., Centrum Obrotu Wierzytelnościami sp. z o.o. in liquidation, Alior Leasing sp. z o.o., Meritum Services ICB SA, Alior TFI SA, New Commerce Services sp. z o.o., Absource sp. z o.o., Serwis Ubezpieczeniowy sp. z o.o.

Armatura Group – Armatura Kraków SA with its subsidiaries: Aquaform SA, Aquaform Badprodukte GmbH, Aquaform Ukraine ТОW, Aquaform Romania SRL, Morehome.pl sp. z o.o. in liquidation.

Pekao Group – Pekao with its subsidiaries: Pekao Bank Hipoteczny SA, Centralny Dom Maklerski Pekao SA, Pekao Leasing sp. z o.o., Pekao Investment Banking SA, Pekao Faktoring sp. z o.o., Pekao PTE in liquidation, Pekao TFI, Centrum Kart SA, PFS, Centrum Bankowości Bezpośredniej sp. z o.o., Pekao Property SA, FPB – Media sp. z o.o., Pekao Fundusz Kapitałowy sp. z o.o. in liquidation, PIM, Xelion.

Link4 – Link4 Towarzystwo Ubezpieczeń SA.

NZOZ Trzebinia – Niepubliczny Zakład Opieki Zdrowotnej Trzebinia sp. z o.o. Pekao – Bank Pekao SA.

Pekao DFE – Pekao Dobrowolny Fundusz Emerytalny. Pekao OFE – Pekao Otwarty Fundusz Emerytalny.

Pekao PTE – Pekao Powszechne Towarzystwo Emerytalne SA in liquidation (formerly Pekao Pioneer Powszechne Towarzystwo Emerytalne SA).

Pekao TFI – Pekao Towarzystwo Funduszy Inwestycyjnych SA (formerly Pioneer Pekao Towarzystwo Funduszy Inwestycyjnych SA).

PFR – Polski Fundusz Rozwoju SA.

PFS – Pekao Financial Services sp. z o.o.

Bank BPH’s Core Business – organized part of the business including all of Bank BPH’s assets and equity and liabilities excluding the assets and equity and liabilities that remained in Bank BPH after the demerger and which constitute Bank BPH’s mortgage business.

PIM – Pekao Investment Management SA (formerly Pioneer Pekao Investment Management SA). PTE PZU – Powszechne Towarzystwo Emerytalne PZU SA.

PZU, parent company, parent – Powszechny Zakład Ubezpieczeń Spółka Akcyjna. PZU CO – PZU Centrum Operacji SA.

PZU Ukraine – PrJSC IC PZU Ukraine.

PZU Ukraine Life – PrJSC IC PZU Ukraine Life Insurance.

PZU Życie – Powszechny Zakład Ubezpieczeń na Życie Spółka Akcyjna. TFI PZU SA – Towarzystwo Funduszy Inwestycyjnych PZU SA.

TUW PZUW – Towarzystwo Ubezpieczeń Wzajemnych Polski Zakład Ubezpieczeń Wzajemnych. Xelion – Dom Inwestycyjny Xelion sp. z o.o.

Other definitions

BFG – Bank Guarantee Fund. CGU – cash generating unit.

Forbearance – tools used to restructure debt, most frequently taking the form of arrangements provided to the debtor by the creditor.

CODM – chief operating decision maker within the meaning of IFRS 8 Operating Segments. WSE – Warsaw Stock Exchange.

IBNR – Incurred But Not Reported or 2nd provision – provision for losses and accidents incurred but not reported.

PZU standalone financial statements for 2018 – annual standalone financial statements of Powszechny Zakład Ubezpieczeń Spółka Akcyjna for 2018 prepared in accordance with PAS, signed by the PZU Management Board on 12 March 2019.

KNF – Polish Financial Supervision Authority.

Commercial Company Code – Act of 15 September 2000 entitled Commercial Company Code (consolidated text: Journal of Laws of 2017, Item 1577).

IFRS – International Financial Reporting Standards, as endorsed by the European Commission, published and in force as at 31 December 2018.

NBP – National Bank of Poland.

Tax Group – Tax Group established by the power of the agreement signed on 20 September 2017 between 13 PZU Group companies: PZU, PZU Życie, Link4, PZU CO, PZU Pomoc SA, Ogrodowa-Inwestycje, PZU Zdrowie SA, Tulare Investments Sp. z o.o., Battersby Investments SA, Ipsilon Sp. z o.o., PZU Finanse Sp. z o.o., PZU LAB SA (formerly Omicron SA), Omicron Bis SA. The Tax Group was established for a period of 3 years – from 1 January 2018 to 31 December 2020. PZU is the parent company representing the Tax Group.

PAS – Accounting Act of 29 September 1994 (consolidated text: Journal of Laws of 2018 Item 395) and regulations issued thereunder.

PLET – Polish Life Expectancy Tables published annually by the Central Statistical Office of Poland.

RBNP – Reported But Not Paid, or 1st provision – provision for losses reported but not handled and handled but not paid. IASB – International Accounting Standards Board.

Capital Requirements Regulation, CRR – Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012.

Consolidated financial statements – consolidated financial statements of the PZU Group prepared in accordance with IFRS for the year ended 31 December 2018.

KNF Office – Office of the Polish Financial Supervision Authority.

Insurance Activity Act – Act of 11 September 2015 on Insurance and Reinsurance Activity (i.e. Journal of Laws of 2019 Item 381, as amended).

Supplementary Oversight Act – Act of 15 April 2005 on supplementary oversight over credit institutions and insurance undertaking, reinsurance undertakings and investment firms comprising a financial conglomerate (i.e. Journal of Laws of 2016, Item 1252, as amended).

ZUS – Social Insurance Institution.

OSM PZU – Ordinary Shareholder Meeting of Powszechny Zakład Ubezpieczeń Spółka Akcyjna.