Powszechny Zaklad Ubezpieczen SA (PZU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm happy to welcome all of you at our quite technical event, but it's an event aiming at getting you through the status of how PZU Group fulfills its commitments that we made in 2021 when we published our strategy for the years 2021 to 2024. So we are just in midterm, and we are obliged to present you the status. So in substantive part, it will be in line with what we said during our performance review for the year 2022, and we would like to a few words about our point of focus for the next 2 years to the year 2024, of course, in terms of our products, in terms of our key activities and key projects, which in our understanding, it should still build our durable competitive advantage when it comes to PZU Group versus the market we're operating on. In the second part of this presentation, we will spend some time on presenting what has changed exactly in the middle of the implementation of the strategy. This change is technical in nature. And this is -- that regards the valuation of loss, which for an insurer, who is obliged to present its -- and to report in line with IFRS 17, so the changes in valuation of liabilities and presentation of results. It will be quite alike to the local solutions. We will say a few words about this new standard and how it affects the group, its individual segments, life and non-life insurance. We will tell how the valuation principles change and how in consequence of important factors. So firstly, the technical change. And on the other hand, entire bunch of changes in the functioning of this group, we'd like to verify. And we're obliged to verify our targets for 2024. We're convinced that this group should set some ambitious goals. And in the last part of our presentation, we will present our ambitious objectives. So this is our plan for today. When it comes to the implementation of the strategy for 2021, 2024, after 2 years, we are exactly as scheduled, where we planned to be, and we've been discussing that periodically during our performance announcement and performance review conferences. So we can say that it doesn't come as a surprise. We do not surprise -- the surprise is rather positive than negative, and we can tell that we have covered the majority of objectives in this quantitative dimension that we set to ourselves for the year 2024. So we're still creating, and we will continue to create durable relationship with our customers and clients. So on the one hand, we're developing and we did a lot in terms of the development of business ecosystems and dedicated offering out of the range of insurance products, and we will tell a few words more about it. So for the first time ever, our strategy, in this main layer, was talking about sustainable growth. For the first time ever, we said how ESG dimension is important to us. And we said that the group strategy is not only PZU Zycie and PZU SA. This is the potential which is accumulated in our dependent company in our -- in companies managing assets and banks, which are owned by PZU Group. Where are we after 2 years. So when it comes to our perception of implementation of the strategy, we are convinced that we are more or less at the level of 55% to 60% when it comes to advancement of implementation and taking into account what we thought about this it concerned mainly changes in distribution and changes in offering and our overall approach 360% universal offering. So a strong accent put on offering and dedicated offering. Of course, taking into account the nature of the with high component of allowances and losses and some supportive initiatives dedicated to our employees and also to our customers. We think that we have exceeded 50% in terms of implementation of key initiatives, making up for the strategy of group in the time horizon. When it comes to distribution, we concentrated on development of the tight agent network. We have implemented a new management model, and we offer our agents state-of-the-art tools, which should drive further development and sales and reach to our clients and customers. We have improved our presence in a multiagency network. Let me remind you that PZU Group, before the announcement of the strategy, was underrepresented in this multi-agency channel. We want to explore this channel further because we think that we are underweighted there. So we count on profitable growth, we did a lot over the last 2 years and a lot of new initiatives are ahead of us and new challenges, of course. We are developing in the manner, which will provide our customers with wide access to our offering in the simplest possible manner, the most intuitive in the channel of their preference, not the one which is of our preference. So here, we're talking about omnichannel approach to customers, and we put an emphasis on that during the presentation of our strategy. When it comes to offering, we are expanding our offering flexibly, and we are reacting proactively to the landscape. We introduced endowment with a single premium, which uses all the things that we had to tackle in our environment. So this product managed to builds a very attractive offer to our customers related to the construction of saving -- including saving and allowing to accumulate money and accumulate savings in products, which are -- have a form of an insurance policy. So we are still modernizing our offer when it comes to life insurance and especially when it comes to group insurance. Some new types of insurance PZU Zycie plus. We are changing on the side of non-life insurance, a new offering for housing cooperatives and residents. We implemented truck assistance product, which are attractive for owners of heavy fleet, iFlota Risk Pro Solution, and all that based on state of the art quotation solutions, which allow us to match price to risk level. When it comes to adjustment of losses and claims and benefits handling, we do everything in order to -- we want to empower our customers in terms of handling claims and in terms of all interventions. So we want our customers to send the documentation as soon as possible. That increases the level of satisfaction of our customers with consequential cutting of costs, so taking into account all changes happening on the insurance market. So in our strategy, we said a lot about so-called ecosystems. We are developing solutions and products, which are complementary to key or leading insurance products in order to be able to build even stronger relationship with our customers. And when it comes to drivers ecosystem, which is built based on the leading product, which is the motor policy. This is not only an insurance policy, this is the technical check support during the sales or purchase of a vehicle, some discounts for consultation service, hauling and other complementary services, which fill the gap in the main product. And this is something, which, on the other hand, makes our customers satisfied and gives them a signal that we take care of them. On the other hand, when it comes to group insurance solution that fulfills the same assumptions based on 3 elements: cafeteria, support and agent support in order to increase the value, both for corporate clients and foreign employees of corporate clients. This is something that proves sufficient and which, quite like the driver's ecosystem, creates an even stronger relationship with our customers. It increases the exit barrier because it is even more difficult to replicate the whole range of products, which are rendered via PZU Group in a comprehensive manner, at the same time, translating into higher revenue. PZU, at the same time, help within our health ecosystem, we are implementing and expanding our offer were our profit access packages and health condition prevention packages, we are available via online platform. We implement new functionalities at PZU platform and which is really important to all of you when you visit doctors you know how much it means that we offer an access to health records of our patients. So all of you using our health centers owned by PZU, you can access your medical records online. As I said at our own health centers. And last, but not least, the ecosystem mentioned in our strategy that regards our awareness of the structure of our clients and customers. So these are also mature, senior customers, let's put it like this. So we have to take care of this particular group as well. So we're developing, we're growing, and we want to expand our outreach to senior customers after the audit of the National Institute of Silver Economy, our branches were certified. That means that our services respond to seniors' needs. So we want to increase the age of the entry. We modify entry levels. We are preparing optional agreements to make seniors enjoy good level of protection and insurance. We're implementing new agreements, especially when it comes to individually continued insurance. This is very important from the point of view of the product structure of the group. So it's a very important component. We'll further focus on micro services for the elderly on dedicated packages to the elderly. And as I've already said, we will continue to focus strongly on a range of products within the individual continuation package. We are also an omnichannel company. This means that we support our customer in the channel here she likes best. We have a very strong support in terms of CRM -- action CRM. We want to reach our customers even better. Our -- the structure of our channels notwithstanding, we just want to be wherever the customer needs us. So there have been many changes in distribution channels that tied agents, that direct channels are, as I've already mentioned, we have made a strong entrance into the multiagency channel, also the dealer channel, but there have been so many changes in our branches. We've been also consistent in our approach to subsidiary companies and our strategy. So a few important information for you here -- a few items of information here. So we have this TUW PZUW target related to the written premium was met 2 years ago. So TUW is a very special channel to us. And here, we are able to prove that sales has exceeded PLN 1 billion. Several new funds on the platform topic related products such as the renewables, gold, real estate, which we believe will continue to drive the growth of the assets under management. We've been growing in the field of health contracts and health customers because health care is a very strong part -- a very important part of our strategy. We've been trying to change and also move towards digitization. We are also implementing machine learning-based models. This is because we want to understand the needs of our customers even better. But on the other hand, we want to improve the price and the offer to adopt it even more to the customers' needs. We've been growing at a very dynamic rate in the Baltic markets. The revenue has grown by 30% compared to 2022. So now speaking about the accessibility of our products, both in the banking sector and also the banking products available in our own channels, this is also covered. And well, all these have happened for the first time within such a -- with a nice structure, which is so strongly focused on the ESG. For the first time, these strategic goals have been addressed and implemented both at the top managerial level and the management board level. So let me mention the climate neutrality at all the goals we have already discussed with you. The percentage of corporate customers and the number of recipient of social activities, the growth of our interest in the green component, all of these are aligned with our goals and plans, and it all has been going as expected. So we are on the right track to accomplish the strategic goals. And this also translates into meeting the indices, the key indices of the strategy. We have 4 essential indices out of 7 of the written premium, the net profit, ROE. We have a very strong equity position measured by the Solvency II ratio. This was met at the end of 2022. But despite these, we think we should be consistent in accomplishing our goals because we also need to face changes in our surrounding. So we will show you now that we -- there are some aspects of our surrounding and reality that were -- reality that were difficult to predict, take the war in Ukraine, take the pandemic. And this has very strongly affected our standing where we are today, I mean the PZU Group. But I'm happy that we are able to grow even more and generate even more value to shareholders. We continue to proceed as planned in terms of our products and our strategy. We want to keep changing our offer by introducing life products and property products to measure up to the needs of our customers because the expectations of customers keep changing in a very dynamic way nowadays. This is also related to some changes in the environment. So we need to keep adapting. We need to be flexible. We will keep developing our business ecosystems with a very strong support from the loss and benefit service and the supporting services. So these were the promises, the commitments we made as a group to you at the beginning of 2021. They were classified to categorize in 1 of 4 baskets, so to speak, 4 buckets. So these are the commitments that translates into the growth of value that drive the value growth, and they also translate into a stable dividend. So what we are talking about that is how we want to unleash the potential of the group? How we want to keep being an innovative group, at the same time, stable sustainable growth is very important to us. We think that our strategy will continue to be realized in a stable way, and we will meet our goals when we believe that this would translate into better performance both in separate lines of business and for the whole group. So I have mentioned a few changes and this means that our strategy is increasingly a rolling strategy because it's harder and harder to make plans for -- long-term plans for 3 years, 4 years because there are many changes, which are quite unpredictable, and I will discuss this further on. Therefore, the rolling strategy approach, we think, is a good way to address all these risks. And this also allows us to untap the potential in our subsidiaries because we consider that it's still -- there is still some unleashed potential in them. So we will be moving to a new standard. There will be changes in the environment. Therefore, we need to explain to you how now you might interpret our results or the financial statements and that results and the performance in each segment. First of all, let me, in general, tell you what the standard is about. So the standard relies on 4 pillars: consistency and comparability, clarity, transparency and market valuation of the balance sheet. So Pillar 1 now, consistency and comparability. So this assumption was supposed to make insurance companies more comparable to other industries so that if you have the stock exchange and public companies that deal with banking, insurance services or manufacturing, so whatever they do, they won't publish their financial statement. They will communicate what they do. They will also speak about their profit and loss, and this standard was supposed to make it all more comparable. So let me give you an example here, which is about the insurance industry. So I don't know whether you realize, but actually, this assumption is very much to the point. Take life and non-life insurance, so if you look at it from the point of view of the revenue, this was largely incomparable. But this standard is now trying to deal with it. Well life insurance and the written premium here is a premium in the reporting period. And for non-life, this is the premium for the whole liability period regardless of how long it is. And all these regardless of whether these amounts have been actually paid. So this shows you the following that in the previous standard, there were some important differences in recognizing these revenues and this new standard is precisely trying to address that. The second assumption is clarity, so even more information, more reporting, both about the sources of the cost and profit, but also separating the components that make up the final result. So a split between the direct business, reinsurance and the performance on reinsurance and also the management of investment portfolio and the investment income. This also translates into more transparency and information that is, on the 1 hand, comparable, on the other hand, more practical and useful. And the fourth assumption, the fourth pillar is market valuation of the balance sheet. Well, you probably realize, and this is why I have given you the -- this example. Well, in the previous standard, we had revenue that was never converted into cash. We know what the percentage of bad debt and motor policy, policies is. It wasn't that small. And the new standard is also trying to address this challenge. But the regulator has introduced the standard. And probably to make it more -- to make even more sense, this also addresses the active part of the assets part of the balance sheet. So in order to maintain the symmetry between the assets and the liabilities, the regulator says, so you should at the very same point, address the changes of the Standard 9, which is about financial instruments and their measurement and the insurer's balance sheet. So that the shift from macro method to cash method and the mark-to-market valuation could be reflected the 2 sides of the balance sheet. So as to transfer, it's symmetrical -- both to assets and liabilities, both parts of the balance sheet. When it comes to assumptions, the devil is in the details. And here, the detail is that possibility of simultaneous implementation of the changes by PZU by the entity from the Polish market by the entity, which, at the same time, needs to satisfy all local accounting principles and standards, which has some far-reaching consequences stemming from the fact that, as you perfectly know, the valuation in the balance sheet results from the strategy and now the other way round. Why am I talking about this? Because the possibility to make this change, which was used by our peers when it comes to other European companies in Poland, it was disturbed with the necessity to respect local regulations, with the most important of them, the 1 related to the technical rate in insurance. So some consequentially implemented investment strategies, which affect the level of technical rate. We're not able -- and hear is an explanation. We're not able to amend them overnight. So starting from the 31st of December, 2021, because we need to continue under 2 regimes. We need to deliver on the technical rate because nonfulfillment of this and nondelivery of this minimum profitability may lead to the necessity to raise relevant provisions, which would translate into profitability in a given year. And this is something which we want to avoid at all costs. For this reason, we decided at PZU to leave the standard IFRS 9 unchanged. And PZU will be the type of entity in which there will be a slight lack of symmetry when it comes to transposition of -- and translation of these rules on to balance sheet, both on the assets and liabilities part. When it comes to this new standard, some material changes with regards to versus the existing standard, there are 10 of them. And just shortly, let me browse through all of them one by one. But I will not conceal that this meeting is the first of a series of meetings aiming at supporting you and to give you a better understanding about the standards. So we will continue with such meetings in the future. We're planning a series of workshops where we will explain all details and nuances of this new standard by -- on a very high level versus IFRS 4. So cash accounting method instead of accrual principle, different integration of insurance contracts to portfolio, different segmentation, more extended reporting by segments, 3 different valuation models. The general model, the one based on the premium allocation, which is applicable to nonlife insurance and changing fee valuation and discount of provisions. We are talking about mark-to-market valuations. So we're talking about the actual, not assumed flows, historical rates and so-called lock-in rates adjustment due to non-financial risk so-called component risk adjustment, new approach to cost of activity and a bit different allocation of costs to attributable cost. So costs being the equivalent of technical cost and the cost of which, for any reasons, shouldn't be treated as the cost related to insurance activity. So they should not be included in the new equivalent of technical account or insurance account. The new structure of the financial statements and even more conservative valuation in case of occurrence of a situation of an event that may signal -- and that may signal that, at the beginning, a given contract is not compliant or maybe it leads to some burdens, which exceed inflows. We're talking about loss contracts. And in such a case, the insurer needs to examine and evaluate entire loss. So this loss will not be will not be posted in a time period. And the difference between current and lock-in rates, so differences in our landscape, which will go through overall revenues apart outside of our NPL not to affect the result that we will discuss. This new standard does not affect the potential to create value and pay dividends. And this is a strong statement. And we would like you to remember that this new standard affects the presentation of data, but it does not affect the ability to generate financial flows and how we think about our clients, about the acquisition of distribution and price. This new standard does not affect the allocation of capital of assets strategic initiatives and how it is allocated to some strategic segments. This new standard does not affect cash flows. It affects their presentation only, but it does not affect the manner in which the group monetize relationship with their customers. The new standard does not affect the distribution, the possibilities of the PZU Group when it comes to attractive dividend policy for our shareholders, and this is an important information. This new standard changes the way how we present an insurance events that translates into different presentation of results, especially for long-term contracts. It affects the necessity to adjust capital policy to new standard. So we will need to recalibrate the existing benchmarks for the strategic key performance indicators, like, for example, the operating margin, combined ratio, equity and financial results. It is so because of this new standard affects the valuation of all these events, which is presented in the financial statements. This new standard part from all of the things that we discussed that takes into account changes in the macroeconomic environment. And on the left-hand side, you can see how we thought about changes in the macroeconomic environment before when it comes to individual and highly important parameters such as GDP, investment in fixed assets, individual consumption, inflation, nominal wages and employment and changes in employment in the period 2020 to 2024. And how, over the last 2 years, these parameters functioned and how they can function in the remaining period of the implementation of strategy by 2024. So as you can see on this slide, you can see some material changes, which translate into the levels of interest rates, which translates into the valuation of cash flows within our financial statements. So they -- on the left-hand side, you can observe how we thought about interest rates for adequate years -- for a given years and how, in April 2023, we think about the development of interest rates in the period from 2023 and 2024, and how -- what they look like historically versus our assumptions. So this is an important parameter from the point of view of the structure of this new standard to continue the implementation of strategic objectives. So there will be some changes in valuation of liabilities and presentation of results after the implementation of IFRS 17. Let's start from non-life insurance measured with revenue pursuant to new standard, they represent 65% of the group revenues. This is the part which will be -- for all of you analyzing our performance will be easier to compare to the previous standard. But despite this comparability that brings a remarkable change. Let's start from the wrap-up of the key changes. First and foremost, the new standard gives us the possibility to apply to non-life insurance contracts, which are short term in nature for 12 months so this is a classic non-life insurance contract, the motor or non-life other, excluding motor. So here, based on the model of premium allocation that causes -- that insurance revenues are quite like the earned premium in line with the previous standard, which is IFRS 4. But despite this comparability of insurance revenue, I'd like to draw your attention to lower level of comparability in terms of technical costs, mainly the cost of loss, which the existing conservative valuation of claims reserves will be replaced with the best estimate of cash flows with risk adjustment for non-financial risk. All that taking into account the ratio of the old to the new. If we can make such a comparison, it is presented on the graphic, on the left-hand side. So the written premium will not be recognized in the financial statements. We will not report on the written premium in the financial statements, but for obvious reasons, we are an entity operating on the Polish market, we are bound by the local reporting -- financial reporting and accounting reporting. So we can still compare our performance versus our peers based on the written premium. Of course, we will use it. It will be reported to the Polish financial Supervision Authority. So all of you interested in the detailed statistics, you will have an opportunity to find such parameters in the K&M documentation for life and non-life insurance. So this written premium will stay with us. It will not be recognized in the financial statements, but still it's going to be an important metric, allowing ourselves to compare our performance to our peer group. Importantly, this key measurement that will be used will determine the combined ratio. But we have to rescale this parameter for many reasons. We also need to link it to the values that are present in the statements -- in the financial statements and -- which represents the values the old standard relies on. So the new combined ratio will be a ratio of the insurance services costs, net after reinsurance to the income on reinsurance, minus the reinsurer share. So in general terms, this is a symmetrical approach to the previous situation, but relying on a bit different measures and a bit different valuation according to new standards. So life insurance now. Here, there are even more changes so it's getting even more interesting. So I will begin by summing up -- summarizing the changes. Well, the first change is about the conservative approach that is some typical of the today's standard and the mathematical provision here will be replaced by the liability of the remaining coverage, which is the sum of a few components. First of all, the present value of cash flows, uncertainty adjustments and the CSM, the contractual service margin. This margin represents future earnings from long-term policies. So for the first time in the financial statement we well recognized the future estimated profits from policies and our portfolio. So this is a completely new approach to the presentation of the balance sheet. But let's look at it from the point of view of information. This gives you quite a lot of information on what we think about the future development of the margin related to the customers, which are already acquired, which are already in our portfolio. The margin will be recognized in a proportionate way in proportion to the duration of the contract, and it will be distributed in proportion to our exposure in this time period. Therefore, this will even further reduce the volatility of our performance in time. So the performance and the result will be even more predictable. So this is a great advantage of this method of valuation. And this is the general approach, the general method. So this is an approach to life insurance, in which the expected revenue from the whole period is distributed between the exposure in a given moment of time. So this is the amortization of the CSM. This is about how our exposure evolves in time, and this is how the CSM will be recognized. So this is what I've just discussed. Now let's talk about the change in the macroeconomic consumption. So the change in the interest rate, which is used to discounting provisions, this will not go through the results. So this change in the discount rate will be reflected in the change -- in the equity, the other comprehensive income. So we have made this decision to make results even more stable, even less volatile compared to today's situation because now there is volatility in standard 4. As a consequence, we are deeply convinced our results and our performance will be shown in an even more transparent way. Of course, the devil is always in the details, we will have to get used to that. We will have to learn how to talk to you about that. So hopefully, our meetings and our workshops will help here because they will be also a form of preparing you to how to understand PZU in the new reality. The written premium remains, but it won't be reflected, it won't appear in our financial statements. The same as non-life. We will use this parameter to compare the company to the local market. Now you have, at the bottom to the right, the revenue of insurance. So you can see that here you have the sum of the expected benefits and costs and the release of the contractual -- the CSM under this risk adjustment uncertainty element. So this is for an insurance form of revenue of in exchange for uncertainty. So this replaces the written premium. The CSM here will be the essential measurement of the profitability of what we are doing, but same as before, we will discuss insurance from the point view of the margin, but the same as the combining ratio, this margin will be rescaled and linked to some different aspects. And this is because of the changed structure of the financial statements. So this will be the result of on insurance together with the investment income allocated to the insurance segment linked to the net revenue of insurance after -- of insurance after reinsurance. So now health. Of course, it will be measured according to the new standard in terms of insurance, and other noninsurance related things like health subscriptions, labor medicines or contracts or services provider within the contracts with the National Health Fund and also fee for service. So a situation where a patient goes to a doctor and buys a service, this won't change. So these will be measured according to Standard 15 revenue from contracts with customers. Now the goal for 2024, while the value of the goal won't change, and it will be reported according to the old rules, so relying on the written premium and the -- and the sum on -- of the revenue from noninsurance services. There is another change here, which is the relocation of certain activities in different insurance segments. So the change is the following. So certain investment strategies and classes of assets segregated in an even better way and they are now reassigned to some specific insurance portfolios. So there's investment income allocated to specific segments of insurance. So now the allocated income will be the one realized on assets that secure the technical provisions assigned to specific insurance portfolios. So it will be very intuitive, a model very simple to track. So we will move away from today's approach, which becomes even more increasingly complex that the model of allocation related to the risk-free rate. So our strategy and our allocation strategy will be made up of 2 components now. One is more conservative or more prudent. Here, it's about meeting the liability, which follows from the insurance -- from insurance, so the quality of assets, the liquidity of our assets, their convertibility into cash and this excess portfolio, which will have a different appetite for risk. And hence, the strategies will be a bit more aggressive here. Now insurance revenue. So as I've said, the written premium will disappear from the statements, but we are happy to say that despite this fact, we've been able to meet this goal that was expected to be met in 4 years. We have done this in 2 years already. You can see this on the right. This confirms what I'm saying or speaking about. And now this written premium will be moving towards what we call the gross revenue on insurance according to the new standards. So we expect the following: in the upcoming 2 years, the group should be able to show at least 13% of growth. So if you take the values from 2022, which is about PLN 25 billion that this correspond to [ 26.7% ] of the written premium. And based on that, we will be able to grow at least to PLN 28 billion, which corresponds to the gross written premium of over PLN 30 billion. But as I've already told you a few times, the written premium will disappear from the statement, but -- statement, but as I've already told you, within the non-financial information, we will keep discussing our standing on the market and our position compared to the competitors. Almost 90% of the revenue is generated locally. Now the difference between the gross written premium and the revenue on insurance contracts, we've already discussed that in part, but let me start with life insurance now. So the revenue of insurance will include the expected benefits and costs. Part of the premium related to the recovery of the acquisition cost and also the releasing the CSM contractual service margin. And also releasing the adjustment for non-financial risks, so this uncertainty fee. These will be our revenue, and we will link this to costs. I'm saying less because this might not be obvious to everyone. Our revenue will be the following. The expected cost benefits, administrative costs and distribution costs separately. And the expected margin was part of the price and the fee for uncertainty. This is our revenue. If you compare this to the actual cost, so the cost of benefits, the administrative costs, the distribution costs. So if you simplify this formula, you are left with the CSM, the contractual service margin, which is the expected value, which we realize on different segments of insurance. But in contrast to the written and premium, insurance contract revenue is in line with this new standard, exclude the amount, which will be paid out to the insured person regardless of the future events. So this is the component, which, depending on the future events, can be paid out as damages or it can be provided as a share in profits. So these are different constructions, different structures, which in our activity that relates to expected values of payout for endowment and life insurance. It can be related to the insurance capital fund. So this is the value that will stem from PZU and will flow towards the policy holders. On the side of non-life insurance, when it comes to revenues, this will be liabilities resulting from the remaining outstanding coverage. So -- and premium according to IFRS 4 adjustments with the premium for acquisition cost, this component of the acquisition cost, commission from inward reinsurance, which reduces gross revenue under IFRS 17 as we talk about the cash standard write-offs from unpaid premiums, which are presented in a totally different line of the financial statements. And the equivalent of these amounts, which are paid to the -- hold the insured -- insured person, the holder and including discounts, rebates, reassurance scale -- reinsurance sliding scale. Due to the different approach, the net assets also change. And this is the information which constitutes an element of our financial statement for 2022. So this is the accrual by additional PLN 5.1 billion on equity, so PLN 5.1 billion mainly due to a different measurement approach to liabilities from insurance and reinsurance contracts. And the remaining component regards the part, which will remain out of our control and out of our management scope. So this is related directly to changes of the landscape mainly changes in interest rates and all other events that we were discussed within are P&L, which are discounted at historical interest rates, they need to be indexed versus the current rates. So this difference will also runs through other types of assets. So there will be 2 components which will appear in our financial statements due to the implementation of the new standard. That's one. So what is our perception in the context of all these changes and in the context of changes in our landscape, both on the macro -- in the macroeconomic landscape and on the insurance market, what is our perception of our potential in the perspective of the coming 2 years? Let me start from a very important metric, which is the return on equity. We started in 2020. We started from 11%, 10.9%. And we said at that point that we can see some potential in this group, which measured with profitability of equity should translate into at least 17.4% or more, which was confirmed with delivery in 2021 and 2022. And it happened. What happened? The new standard was implemented. The standard that I presented from the point of view of net assets and reporting so that caused a great accrual on the equity part because of a different valuation of technical reserve. So the first break, minus PLN 4.4 million represents the performance in 2022, which is in line with standard 4 related to the new capital base, equity base and due to the fact that this equity base is going up with other parameters and remaining unchanged, we need to put an emphasis here that the profitability of equity only due to this technical adjustment needs to be lower by more than 4% and [ 5.5% ]. The next change includes the following components. Firstly, the difference between the result in line with standard 4 and standard IFRS 17 in 2022. So we can see this transfer as of the date of the transfer. It's has -- it causes some other equity changes including independent entities and the related entities. And on the side of total revenues in the banking sector and it affects how dependent companies think about their equity structure. So we can see some drops by additional 1.9 percentage points and the fact to break positive and grew by 2.4 percentage point determined by business growth and increased profitability between 2020 and 2024 within this new standard. So this is our projection for the future. The [indiscernible] all these changes lead us to the new value 15.5% and we want this to make -- we want this level of 15.5% to make it our benchmark and our strategic metrics and our commitment before all of you, but this is not everything in terms of changes, the last element is totally out of our control. And this is the element that reflects the changes in our environment. Mostly due to changes in interest rates and valuation of technical reserve, which is dependent on changes in equity and capital. So taking into account this last change in line with the current macroeconomic assumptions, this is super important because if anything changes in our environment and if in case of occurrence of some events, may be similar as the one that we experienced during the last 2 years and our forecast will not be implemented or will be -- will materialize in a different manner, this is the break that should draw our attention because this is the parameter directly reflect the market change. Recalibration of key indicators of the strategy. So what is our perception of them after all the changes we discussed? We replace gross written premium with the value, gross insurance revenues. So we changed our KPIs because all these parameters should be audited and the -- there is no written premium recognizing the capital group. So that's why this is the element that we already discussed. We think that this group has still potential for growth and for further changes. So we want to put our challenge at the level of 4.3% when it comes to PZU Group net profit, so we increased and our ambitious -- our ambitious goal. So taking into account everything that happened to valuation due to the implementation of the new standard, which was recognized as additional changes in the net assets. We set ourselves a new goal, which will be called adjusted return on equity, so adjusted ROE. This is the adjustment profitability of equity by 15.5%. It is adjusted by what -- by this element related to changes which are completely out of control of the group. Other indicators, health pillar revenue, 1.7% bank's contribution including the information and recognizing the public information of the new strategy in the banking segment and verified value from PLN 800 million to PLN 1 billion assets under management, PLN 60 million unchanged and Solvency II ratio unchanged. With simultaneous maintenance of the asset and dividend policy in the same shape. So we think that, like up to now in the years to come, we will be able to continue the -- our dividend policy in an unchanged form. Of course, in 2019 and 2020, it was under influence of some turbulences which were confirmed with recommendations with regard payout of profit, which -- or retention of profit, which was issued by the Polish Financial Authority -- Polish Financial Supervision Authority, but we would like to continue our policy in an unchanged form. So this is the information, the announcement that we have for all of you today. As I said before, this is just the first step in a series of something that I would call a shared learning curve. So we want to provide you with information, allowing you to make this transition from the old reality to the new one. As I mentioned, during today's meeting, we're planning a series of workshop, which will start at the beginning of June, and they will allow you to get some technical information on how to -- what will be the reaction of given types of insurance to this new standard. The second thing is that we want to uphold our commitment and stress that over the next 12 months, we will present our performance according to 2 standards, the new one and with a hypothetical assumption as is on the 31st of December 2022, nothing changed. So we will also present it according to the previous standards. So to all of you who did not manage from the point of view of models and valuations to shift and to jump into this new car, we will guarantee you in the perspective of the next 12 months and continuity. And then we will encourage you to shift and to stick to the new standard.

Well, so much for our [ decorations ] and information. Do we have any questions? Yes, we do. Thank you.

The first question was are there any works, the Ministry of Finance or the National Supervision Authority to move away from the Polish accounting standards towards the international ones? I don't think any capacity to answer this question. I'm -- unfortunately I'm not able to answer on behalf of them, not on my own behalf. So I'm sorry for that. So maybe someday in the future, we will have some more information about it. And the "National Supervision Authority is looking at us, and this -- looks at us in these 2 dimensions but s will be difficult. It's a difficult situation because it's like you had 2 road traffic regulations, legislations and in one place with completely different speed limits. So it's going to be difficult to handle. But unfortunately, I can't tell you more about it. This new standard will also bring up from the results of the competitors as well. Will this affect the prices of the policies? This is a very interesting question, actually. And my just reply will be a consultant's reply. I'll say it depends. It depends on what? Well -- well, it won't depend on how the competitors would report to the National Supervision Authority because here, there are no changes because at the Polish standards, the regulation by the Ministry of Finance continue to apply. So no changes here. But within these limitations, the regulator, the supervision authority checks the competitors, check their price adequacy. So this means this price aligned with the Polish law on accounting, the Ministry of Finance Regulation and so on. So is it compliant? So in theory, this shouldn't translate or affect the price competition anyway. But I said it depends. Why? Because we do realize one thing, and let me go back to 1 of those 2 charts. Today's provisions are quite conservative, both for life and non-life and we do realize that will be replaced with the best measurement, adjust with uncertainty. And this is what this relation looks like more or less and we do realize that there are some insurance companies, which are part of a larger group and they would report their consolidation packages, according to new standards to the part companies, and this will reflect different results than the results which are aligned with low-cost regulations. So I think that it all depends on the approach to the low-cost strategy will be taken by these owners of the local entities. So we'll see how it evolves in the upcoming reporting periods. Let me also remind you one important thing. The local market continues to be bound by the Polish legislation and the adequacy that lays down the minimum acceptable level of prices. The consolidated -- this net result in 2022. How much will this be if the standard 17 had been applied throughout the whole 2022? I would like to answer this question today, and I will tell you why. Maybe that was a sign trying to suggest to me don't reply. We've just implemented the standard not so long ago. There have been many changes in terms of the interpretation of the standards of the last 12 years. Many things have been harmonized, standardized and made clear and made precise. And this has a huge effect on this answer. I know that this is not -- it doesn't end here. And we'll try to reach a consensus when it comes to further specifying and precising the standards and how we do it will have an effect on the results reported in the upcoming 12 months. So this is a journey, this is an adventure, you will embark on it with us. And to all of us, both the industry and you, this will be a learning curve about how we will report the results. So I don't want to give you a clear answer because I will be somehow bound by it but this is not only about the standard alone. It's also about what has happened in our surrounding. We cannot treat these elements independently. Therefore, it has a direct effect on my answer. Of course, soon next month, already, we will report the first quarter to you compared to the results of Q1 2022, according to the new standard. So quarterly, you will keep receiving an answer to this question. But I will be honest here that I expect that there will be further discussions with regulators, further things to be -- to be made clearer and also discussions with auditors and all these will have an effect on the answer. So according to the presentation, the expected income undergoes a positive revision. Could the DPS also undergo a positive review or shouldn't we exchange -- shouldn't we expect any change in the level of payout because there are no changes in the PSRs? What can affect the increase of the dividend? First of all, we should remember one thing. There is a maximum cap of the dividend by the result of the PZU USA as a company, the Holding group. So we will never pay a dividend which is over -- which is more than what we have in the company minus the statutory write-offs. This is the first part of the answer. Now goes the second. So we've presented you a scale and its growth. So given that, I wouldn't -- it wouldn't be rational to expect more higher top line. So this may be kind of an indirect answer to your question. We have never targeted the DPS level. What we know now comes the third part of my answer. What we want is that profitability of the dividend to be made up of very few components here. So the baseline profitability which is linked to the treasury bonds, profitability and also the risk component, which is related to our business. So that it's a risk-free plus approach plus an additional margin, which is related to the nature of PZU's business. Another question?

The difference between PLN 4.3 billion net income under IFRS 17 in 2024 versus your previous guidance of PLN 3.4 billion?

I have already addressed this question to some extent. It's extremely difficult to quantify this. This is because we will have to go back to 2020 and a margin -- a world, according to the old microeconomic assumptions and the new standard. So this is practically [indiscernible], I mean, these 2 components. And I would like to stress that. So answering this question will be extremely artificial. And I would like to avoid it because this goes public and then I'm afraid of some values becoming a point of reference, and this was -- this would only mislead you, nothing more. So I wouldn't like to do it.

Occasion of opening CSM at 1 January 2023 and -- and what are your assumptions regarding annualized rate of CSM release?

Of course, this information will be part of our statement. And the CSM will be spread over time. This will be part of the reporting. So we've already started drafting our report for Q1 and then the annual one, so in our statement, we will show you some information on the CSM. So the CSM had not been part of our statement before and we will show you our approach to how to distribute the CSM over time. How we are going to consume the CSM enterprise at work and you are new one from the policy cohorts. So in other words, what's the replaceability, et cetera, of it. So we will give you this information soon, but not today, not yet.

[Foreign Language]

Well, I have to elaborate it on it a bit more. If you know the PZU for longer, you will remember that for many reasons, also because of the size, you can see that the PZU has huge advantages that allow us to obtain profitability which is much higher than the one of the competitors. Under the measurement index, which is quite safe, or it is 92%. And recently, we've been consistent in meeting these assumptions. Today, we are facing a situation where this value needs to be recalibrated. This is before -- because we are applying a different quantifier and a different appraisal of the cost components. So the technical insurance reserve. You can observe this on the slide. So this is the cost. And part of it is under the new regime out of the insurance technical account. So we could expect that what I said, despite the fact that the year end premium is more or less comparable to the sum of insurance revenues that this new combined ratio will be lower than the value that I mentioned before. To what will be its shape? Of course, everything depends on the manner how our economy will be shaped. We talk about reserves, about risk payment and we're talking about the ratio of PSR conservative reserve, which was one to one in line with the reserve in standard 4 with different valuation of all reserves. So yes, we can expect that this ratio, this indicator will improve. But today, I wouldn't like to talk about it in some final terms because in less than 1 month, we will share this information with you within the publication of our performance for Q1. We will present the analogical results from -- for the underlying periods last year and this information will be complemented with the information on how that changes from the point of view of our competitive position affect attractiveness of relevant segments and relevant products, including the most difficult MTPL product. So soon you will get on details. Next question, will the new standard affects the calculation method of capital ratios? No capital ratios. This is about totally different reporting. It depends -- the capital adequacy. So nothing changes here. These are 2 independent -- the important announcements, which will be made separately. [ TFICL ] for net profit increases in 2024 by about PLN 900 million. and what part is this change due to reporting rules and in what part to the macro environment? So have you taken into account any other factors and what kind of factors? So what I can -- what can I say? Something that constitutes an element of contribution of our group is in line with how banks are presenting their expectations with regards to future which -- and the most important factors here are interest rates, but at the same time, we need to remember that the new sales got disturbed at banks and at the same time, our sales of insurance products, which are complementary to the banking products and facilities. So we're dealing with some factors that are consigning and -- but if we were to sum it up, these would be interest rates because interest rates are responsible for this change in the major part. So these are all questions. There are no questions. So how does it happen? Are there 2 channels? What is the new net profit forecast under the old standard? There is no old standard anymore. To what extent the change in target net profit for 2024 is due to the change in the standard? And how much is it also due to -- for example, faster-growing insurance revenues and yet higher yields now than in the strategy assumptions? Of course, this is a mixture of all these elements. And for all the reasons that were stated today, we are not able with full responsibility to perform any of the 2 exercises. So going back to the year 2000 and recalculation of strategy based on this new strategy without any change because we would have to agree on some other transition date, which is super technical, on the one hand, but this is significant for the entire jigsaw that we're doing with them, then we would need to predict everything ahead. But we are -- we don't know what should make this transition date and this date would affect the assumptions. So we will not provide you with an answer to this question. What is the most important here is that we are changing our target for 2024. And this new target is the combination of some components that you ask for.

There' is behind the improvement in 2024, net profit target from 3.4 to 4.3, how much from nonlife, life asset management, et cetera?

I think that this question leads us to the same answer. So this answer cannot be different in any way.

And expect -- earnings are expected to rise and your dividend policy is unchanged of at least 50% IFRS group earnings. Does it imply increase in potential dividends?

I think we have already answered this question from the point of view of how we think about the profit payout and the 3 components making up for it. So the first thing, this is the attractiveness of the investment which stems from devaluation of risk-free calculation for the market that we're operating on the risk related margin resulting from the profile of our activity. So this is the absolute attractiveness versus other alternatives, investment, facilities and saving projects plus growing potential. And as you could see [indiscernible] of top line, this potential is expanding. So all of these factors that leads us to the same answer as additional potential in the future. Do we have any other questions? Any other iPad available? No. So we have exhausted a list of questions. Thank you very much for your presence and attention. I hope that we're seeing each other quite soon in the chapter called Q2 performance review and for all of you willing to explore the IFRS standards through the prism of our performance, all of you who want to understand this better, you're welcome at our workshops. And thank you very much for today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]