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

Welcome to the results conference of PZU Group, during which we are going to outline the results that we obtained in 2024 -- in quarter 4 2024. And we are going to have a snapshot provided by Andrzej Klesyk when it comes to creating value for shareholders. Over to you, Mr. Klesyk.

It is my pleasure to be able to welcome you yet another time for the first time in this capacity. And I'm really found that I can be also having this meeting with people who are attending online this conference. This conference will be delivered in Polish, but questions are allowed either in Polish or in English as there is a simultaneous interpreting provided. Ladies and gentlemen, I am indeed delighted to be accompanied by Tomasz Kulik. My colleague has been my colleague for more than 15 years now. And I am as much happier that I'm assisted by him during this meeting. For 2024 results, these are not my results per se. These are results that I cannot be held accountable for. I'm happy about them as a CEO. In a way, I'm also proud of them, and I'm going to comment on that in the second part of my statement. And try to the start, let me tell you this. I'm a new old CEO, and I've been here in this capacity for a month. Exactly, it was a month ago that I was instituted as a CEO of PZU. So please soften your expectations as regards to questions and providing you with some details. I will be coming back with the details afterwards. I'll try to stay transparent as far as the strategy and the figures are concerned, and Tomasz Kulik is going to provide me with a helping hand in this regard. For this presentation, it is going to be focused on some major points related to the past events that is 2024. But now let me take this opportunity to give you a snapshot of some major developments that we are going to roll out in the months to come, something that will organize my work and work of my colleagues. Normally, I would go through the highlights, but the status in question is something that I inherited. And again, let me stress this, I'm happy about the results. But actually, I can't take credit for that. And therefore, I would like to hand over now to Tomasz Kulik, who was in charge of delivering on these results. Tomasz, the floor is yours.

Good afternoon, ladies and gentlemen A quick summary. Many of the items discussed must be already clear to you as these results have already been published and are available for some time now. I'm going to sum up the year 2024, and then I'm going to go over our segments. The things that we were focused on. In order to save a bit more time for telling you the story and what the outlook for the future are and what our next chapter is going to be. Summing up 2024 was a year that hit us for under-profitability. We were speaking about the event in the second half of the year, frost in agricultural lands, third quarter there is floodings in the South of Poland. And again, it did a lot of damage, especially in our profits and entry results side in our operations. However, we have revenues from insurance services equivalent to PLN 29.4 billion, plus PLN 2.6 billion year-on-year. As far as profitability is concerned, as profit equivalent to PLN 5.3 billion, adjusted ROE equivalent to 18%. I will highlight the following. This means our position is excellent. Our position is excellent to be able to think about some more ambitious objectives and to be pursued and the surplus in capital may be allocated over a new business ideas. But this position is very solid also in terms of thinking about paying our dividend with the outlook of 2025. So at the group level, 234% Solvency II ratio for PZU SA 244%. So our standing here is rather comfortable. What's been on the up non-motor insurance, double-digit growth in this respect, depending on how we approach the calculating 15% or 18% written premium or revenues from insurance, 18% deals with the pillar of health. Assets of external clients is also -- has also been very solid in terms of growth and that's something that makes us concerned. And this also results in our starting point, 2025 is rather convenient. We are not under any pressure whatsoever. 2024 was very difficult. I'm not going to reiterate that, but let me take this opportunity to emphasize the following. We've had a rather good profitability, normalized profitability. It doesn't have to be normalized on the side of life insurance, but our margin is more than 25%. And for the reasons that I've already told you about, we should rather have it normalized on the side of non-life insurance, whereby this combined ratio adjusted by nonlinear events is at lower than 90% result on investment portfolio very positive, and these have been the ingredients that allowed us for a rather good profitability of own capital. On the balance side, and that's going to be our takeaway message for you. Our investment portfolio is very solid. We have closed the gap. We have managed to balance assets and liabilities. active reinsurance protection, effective reinsurance protection, which has provided us with a good protection against the events in quarter 3. And there is also the surplus which is bigger than planned for solvency, and that's something very essential from the perspective of the forthcoming months. As mentioned before, and I'm going to go through the slides, and I'll begin in a slightly different manner. And then we have done it so far. And for the segments, I would like to nibbled some operating topics. For the results, quarter 4 is a very good quarter. Quarter 4 is a sustainable improvement in terms of profitability for non-life insurance, life insurance, the same principle. Quarter 4 stands also for a very dynamic growth in terms of insurance revenues. Therefore, -- and by the way, we are continuing -- we've been continuing on growing for quite some time now. And by the way, insurance revenues is very much linked with the dynamics of sales both in 2024 and in 2023, that's been our reality. And therefore, we report on the revenues and the revenues have grown year-on-year by almost 10%. These revenues have been shaped increasingly by the non-life insurance, non-motor insurance whereby the risks, catastrophic risks are bigger. Given that, we are trying to protect them by means of reinsurance coverage. And this has proven very effective, and this was made evident in quarter 3 2024, but it comes with -- at a cost, 1% in terms of the dynamics of growth. So when adjusted by this and cost, our dynamics of growth in net terms sits at somewhat less than 9%. On a positive note, for the cost and revenues share, these shares have been behaving very good. Costs have improved by 10% and the dynamics of costs has been much lower. So there is this increase at the level of 5%. And we can, having this at hand to have a substandard profitability. Our cost side, what were the ingredients, what were the components and why such results? We are very happy about the decrease in terms of claims and benefits in our costs -- at our cost side. There was one quarter on our non-life insurance side was characterized by a slightly lower frequency of claims -- this has brought about very positive outcomes for outstanding. But there was also another quarter in 2024, whereby we had very positive trends. And those trends were about not having to create 303% in grade note. This is a test which can tell us what the overall quality of the portfolio is. The portfolio that we have just written and the portfolio that we bring along in a new quarter. So the loss component that is site, which goes beyond the written premium that we anticipate to incur given the fact that we operate in this product area or another distribution channel. Well, we need to be -- we need to have some thoughts about the lack of attributability of a given premium in a given quarter, and this is a kind of gap that we need to recognize instantly. And let me show you that this gap has been has been smaller and something that we acknowledged year-on-year and this is -- this comes as a very positive piece of information. This piece of information was also a rigid in the front down that we've got a very solid modern insurance TPL. For the remaining sites and their share in revenues, this has changed, and this has enabled to build up in value in quarter 4. Insurance services PLN 1.22 billion has seen an increase compared to the previous year and compared to quarter 3, and that was subject to a very unfortunate flooding events. When adjusted by net revenues in investments, whereby on the one hand, we've got the reversal of the discounted trade. And on the other hand, we recognize the revenues from investments. And the major trade here is to protect our liabilities. And the quarter is concluded at the level which is substantially smaller compared to our high water mark in the past for our quarter 4 when about the benchmark is 2023 quarter 4. For some other adjustments, we've got a rather solid contribution from the banking sector. Here, we've got PLN 1.68 billion, above the level in quarter 3. And let me draw your attention to the following. We've got a very positive profitability of our earning capital, 22.5% profitability ratio. And there is also a decrease in the claims ratio, 56% now. It sits at 56%, which means we have performed very positively in terms of year-on-year and quarter 3. Claims ratio and loss component, there is also a drop. And we also have a combined ratio equivalent to 86.6%, and there has been an increase compared to quarter 3 2023. And there is also a very significant margin for -- when it comes to our basic operations that is group and individual continued insurance. Now I'd like to give you a brief summary of what took place in the individual segments. We'll start with the mass insurance segment. In this segment, we had growth, in particular in 2 product types in non-motor insurance, PZU Home and PZU company. In PZU Home, we have managed to modernize and refresh our offer. This allowed us to reach out to new customers and to encourage the existing customers to increase sums insured. It is clear that the flood has shown that many of our clients were not adequately insured. In other words, they were insured, but the sum insured did not reflect the value of their property. So as a result of the natural calamity, they lost a lot of their property. And this was also a lesson learned the hard way. As a result, we decided to, first of all, better communicate this issue through our agents. And in this way, we have encouraged our customers to increase the sum insured. We were also selling products for SMEs. The dynamics in this segment was at 16%. Another segment in which we were growing was MOD because of higher prices and because of the higher volume of the insurance. So the results went up by 20 -- 12% year-on-year. And moreover, I would like to add that our growth was fueled by our intention to make this segment profitable again. And I was telling you about it in the second and in the third quarter. Already back then, I identified this issue as the main problem that we would like to address. And to put it a bit colloquially, we have delivered on our plans. So we are happy to report figures in green in MTPL. The profitability measured using combined ratio is at 97%. This is an improvement compared to previous year by 120 basis points. Our costs did increase, but slower than our revenue. The main reason for increased costs was a lower dynamics of the fact that our administrative and distribution costs were growing, but not that quickly. On top of that, we could release a part of the loss component from previous reporting periods. And the loss component was not growing in the fourth quarter cohort. This alone affected our results in that segment. The result amounted to PLN 80 million. As a result, we can report a very good operating result and improved profitability in all product groups. Let us move on now to motor insurance market in Poland. What can we see here? And how do we interpret this data? This graph shows the growth and evolution of prices. So the price in MTPL has been growing by 9%. This is good news, but this is not enough to close the gap between the price and the growing cost because currently, the average claim value is growing higher than the price of the insurance. As a result, we are still pressed to increase the profitability of this product. As far as MOD goes, the situation is different. The average price is -- has grown by 3%, 4%. MOD is a very profitable product. So this increase, even though it's small, it still allows us to generate a lot of profits. And we're only happy to report that our portfolio is quite saturated with this product. And the risk measure using combined ratio is at 85.9% of percentage points. The market is growing faster than the average price, both in MTPL and MOD. In the past months, PZU has been a market leader, and we tried to push it. Unfortunately, we have noticed that our competitors are becoming increasingly more aggressive. This might put smaller players in a difficult situation in the year 2025. Good news is that the frequency of claims hasn't grown that much. It accounts for 93% to 95% of the frequency of claims from the previous year. So this allows those 2 products to be profitable. Unfortunately, it's not all rosy. We have noted that a growing number of claims of other kinds from previous years and actually even from the 20th century. And this is a challenge that our -- that the market will have to face in the upcoming quarters. Now Corporate Insurance segment. For yet another quarter, we have had a double-digit growth, 11.5%. In no-nmotor insurance, it was about 15%. In MOD, about -- from 15% to 9% and the similar situation is in MTPL. -- we have actually an interesting situation in the insurance services, the administrative and distribution costs and their share in the revenue has been steadily going down. This drop is not that impressive, but still worth noting. In this graph, you can see information on claims that have been -- on value of claims that have been growing steadily year-on-year. And our point of reference is the year 2023. You might remember that back then, we had a positive impact of the runoff on the fourth quarter of the previous year. This year, we had a few one-off events that make it more difficult to compare between these 2 quarters. The cumulative effect of both events amounts to roughly PLN 98 million, and it led to a drop in the operating result in this segment. Now the group and individually continued insurance. We're happy to report growth. The fourth quarter actually is our strongest quarter in that segment for the previous year. Maybe the increase is not that impressive in percentage-wise because 7.6%. But in absolute numbers, the result is quite impressive, close to PLN 2 billion. Please note growth of 11.5% in CSM year-on-year. There was also an increase in the premium to cover expected claims and benefits. This is expected as a higher expected use of health insurance benefits. As a result, the -- we have the structure of revenue, as you can see on the graph. The costs of expenses went down year-on-year, and this is caused by a number of reasons. First of all, there was a lower share of expenses in the revenue, lower administrative burdens and lower amortization of the loss component, which is a very positive signal. And that this is actually a way to measure the quality of the general portfolio. And there was also one one-off event, namely lower loss components and the drop is of almost PLN 50 million. The loss component was established due to an analysis we carried out. Let me explain. Once a year, when we do a planning exercise, we check in what circumstances and environment we offer our products. So we check such key parameters like death mortality rate, morbidity rate, and we try to adjust our modeling to our forecasts. Thus far, we have been rather skeptical and we treated positive news with a pinch of salt. We expect it actually to be hit by the post-COVID increase in mortality rate. And this would affect the revenue and the costs. and it did affect the expenses in this quarter. We closed the quarter with the operating result of PLN 603 million. This is a very strong growth. And this growth is caused by some variations and also in the change of the way we approach making forecasts. Now how does the mortality rate in Poland relates to our portfolio? And please note a change in the ratio of the number of deaths to the number of benefits paid out or claims paid out in relation to those mortality. So it used to -- the ratio used to be 1: 6, 1: 5, 1 :4.5. Now the ratio is 1 to less than 4. And the morbidity -- sorry, mortality ratio stayed the same. So the number of claims and benefits goes down while the mortality rate stays the same. And this is caused by the type of products that our customers are choosing when they first -- when they buy their first insurance scheme or when they add additional clauses. Let us move on to individual protection insurance. We had a dynamic growth of 16.3%. So the growth of revenue, CSM amortization has a growth of nearly 23% 17% is the level of premiums related to acquisition expenses. So this was the revenue side. And now let us take a look at the expenses. The expenses have been growing, and they have been growing at a higher rate than the revenue. This is caused by 3 events. The first event is the recognition of the loss component. This is still -- this is inherited from the old portfolio, and we had to have provisions for trials and the court proceedings. We also had higher losses in the banking sector and higher costs of acquisition or higher expenses. So there are 2 events, one related to cost and revenues. It made our operating result bigger and the increase is at almost 15% compared to quarter 4 2023. Now we have seen a growing level of sales and profitability vis-a-vis sales. And we have worked tremendously over the portfolio, and this has been mirrored in the increase of CSM that's going to be released in the forthcoming quarters. And this makes us very happy for the starting point for quarter 4, how it was concluded. So we create more value than we consume. And therefore, that's going to be something very positive to see in the future. Now for our investment result. First and foremost, the portfolio has been characterized by some positive trends throughout various post deposits, and they behaved differently in Q4. And bear in mind the structure of the portfolio that has changed for around last month. Corporate debt amounts to -- amounts -- accounts for 20% and for the strategy of -- in terms of properties, we've got further 11% of the share of the portfolio. So in essence, we changed the character of risk of the portfolio. In quarter 4, we've got a bigger interest rate there has been some hiccup on the property portfolio. There was an adjustment for the pricing in the office sector. And here, there are 2 exposures to risks. Number one is -- but also another one is done. And here, we need to have a closer look. perhaps we need to change the operating model for a set of properties. However, we are rather convinced that such negative news from this portfolio is something that we've been already through. And there are some differences between the pricing of the property that is this technical adjustment, which results from differences in interest rates values between 2 periods and the other being the balance closure. High solvency, we are quarter 1 quarter behind. This is Q3. Quarter 4 is going to be 2 companies, and that's going to have a tweak. We keep growing both in terms of how much capital we've got. In other words, we keep monetizing the business and we create for the operating flows and the result, this has increased by PLN 1 billion. It got adjusted by the dividend expectations. So in net terms, this is equivalent to PLN 300 million adjusted by an increase of SCR for catastrophic risks in noninsurance -- nonlife insurance and also more stringent requirements on the side of the banks. For the summary of the period, which was brought to a closure on December 31, 2024. This strategy was delivered on in spite of a great degree of uncertainty that we were surrounded by. Bear in mind, the strategy was published in the midst of the COVID-19 pandemic. There was much uncertainty concerning what the future will bring. And now we are happy that we can report on the delivery 100% virtually every single segment, and it does testify to our accountability. And the same holds true for the mass insurance side. All of these combined enables us to close one chapter and open another one. And this new chapter, that's going to be the topic of the presentation of our CEO. Handing over to Mr. Klesyk.

Thank you very much for that. Ladies and gentlemen, welcome, I'm a new CEO, but at the same time, I'm an old CEO. So please let me highlight some important figures or trends. And we are going to talk about them in a friendly manner in a manner that is also friendly to the market. I will tell you this. I'm a crazy fond of figures. And you might expect that we are going to present the figures next time together with Tomasz Kulik But today, I'm only going to concentrate on some major figures given the fact that I've been the CEO for as few as 30 days. First and foremost, we are extraordinary. We are uniqueness. It is worthy of stressing. You can recall and I can recall in times past, there were insurance companies that were, so to say, composites. Whereas now we are second to none when it comes to our market share in life insurance, nonlife insurance, and we are in top 3 as regards to health services. So we are second to none in these terms. And we also have in our portfolio 2 banks. So this renders us unique. And this enables us to do unique things. One, you must be familiar with already, but I'm going to tell you a background story to that. Second of all, I'm really happy, I really am about the results that Tomasz has just outlined. But I always stay pessimistic. I am happy that the company could report a positive trend for the profitability in motor insurance services. I am happy, but I'm a bit saddened by the dynamics in question. I'm happy we have managed to increase our revenues in the health pillar, yet we stay -- we are very much lagging behind the benchmark value. Hence, we are a giant, but there needs to be some awakening to this giant. And this has to happen soon. Look at our clients. We've got 22 million people, our clients, the clients of the PZU Group. This means a coverage of 70-something percent in adult population, which is in one way or another connected to the group. And for the brand recognition, there is a very big number of people whose first choice is PZU, our brand. There are also other things speaking to our uniqueness. We've got a very unique platform, 400 -- more than 400 branches, more than 9,000 agents. And these are our exclusive agents, tied up agents. And they've got some sort of physical presence with our logo type, with our [indiscernible]. And we are second to none in this regard. And I believe only churches can overshadow the number of branches that we've got. value. Speaking of investments, we are in top 3 as regards to our investment portfolio. So this is our competitive edge. But on the other hand, this is also our liability. So we need to have a broader approach. We've got 11,000 people. We've got experience. These are all our assets. Just between myself and Tomasz Kulik, well, we share more than 25 years of experience working for and at PZU. This is terrifying to one end, but to another end, it speaks to the fact how much one person can know about one single company and how much you can know about the background and the operations. I've got 3 obsessions myself. I just wanted to put it nicely in English. obsession may have some negative connotation, but I'm crazy about 3 things: value for shareholders, client and on top of that transparency and corporate governance. And I don't want to give you a lecture on how we can create value for our shareholders, but let me offer some remarks on the value for shareholders. What is my take on that? And I believe that we are grossly undervalued, and I will tell you why in a second. Have a look. methodology you select is a secondary thing. But if you've got a desktop research that you carry out, we've got the offering if you've got live banks and if you price other things like PZU Zdrowie, our international entities. Auxiliary companies like Armatura Kraków company plus our properties, which we hold in various places. Well, the outcomes of this calculation, we are grossly undervalued when compared to our current valuation, PLN 50 billion in market CapEx, and that's been calculated for the first time in history, and it has stayed so for a few days now, and we are very happy about that. But look at this red block. It makes me sad. Irrespective of whether it is 7% or 10% or 25%, it doesn't matter. And it makes me really sad in my capacity of CEO. I understand that you won't be holding me to accountability for this red block. But one day you will. And I am perfectly aware of that. Let us take the angle of an investor. We get a discount towards our target value, where we should be, where we should arrive. I just wanted to have some dialogue with some conversation with you. And I will bring in a number of other figures. ROE, ROE. And by the way, these are all figures, and I won't be telling you whether it is -- it sits at 17% or 18%, it doesn't really matter. This is a ballpark to say ROE equivalent to 17% more than Taanxl. So we are greater than Talanx. But our evaluation compared to the profit is smaller. Now for the accounting value, and this is the operation that I performed a few days back, and we need to coordinate the efforts with so much coding because apparently I very nervous. 1.57, 1.6, and it keeps growing. It doesn't matter. I say it doesn't matter. What do I say here? There is a potential to be untapped and agreed and the valuation towards our target. Some years ago, the relation between the price and accounting value, the proportion was 3 to 2 and now it sits at 1:6. And I'm not pretty happy about that. And therefore, I am slightly pessimistic. I asked one investment bank to talk to experts on analytics and investors. And the 4 takeaways are -- key takeaways are corporate governance. And we do have some influence on the corporate governance, but not on everything. Another thing that we have influence on is the effectiveness of managing the equity. The third important factor is the structure of the group and its assets. And finally, another aspect that we do have influence on is the performance. So what the business delivers in individual lines, business lines. We have mentioned today a few business lines that we are very proud of. For instance, we have a very good growth dynamics in the health sector. We do have good dynamics in the employees' capital schemes, but there is no profitability there. We have increased profitability in motor insurance, but we have no growth dynamics there. So this is -- these are the areas where we should be more predictable, and we should use the potential of the 4 factors that I have mentioned at the beginning to the full. So that's the first topic I would like to raise, the shareholders' value. The second of my obsessions are clients. And I'll give you 2 brief examples. In total, we have 22 million customers and only 1 in 4 has a product delivered by another insurer. So is the glass half empty or half full? We can assume that we can actually sell additional products to maybe not necessarily 16 million clients, only to 5 million clients. This is a huge potential that can be tapped. I'm also obsessed with the quality of customer service, even though it is not present in this slide. And I would like to share with you something that I always tell to my colleagues from the Board and to my and to other employees. The client doesn't give a damn about how we are internally organized. When a customer comes to our branch on the one he or she talks to the agent, they talk with a PZU representative. So a customer needs to be able to do everything that he or she needs and to be informed about all the products that we have on offer. And the client when leaving the meeting must be satisfied. Our Net Promoter Score is above the average market level. And that's good. That's great. I'm happy about it. Having said that, we took a step back in a number of areas compared to the levels that we achieved before. And we took this step back not because we regressed, but because the competition caught up with us. And actually, they have even overtaken us. 15 years ago, our company was the best as far as claims handling goes or loss adjustment goes. And now we have to become more competitive and fight our competitors. So this is the customer aspect and we would like to change the structure of this group to a holding structure. And I'm well aware that I'm opening a Pandora's box right now. Let me explain. Holding structure would help us not only in drafting reports for you. Because to be honest, I think that Tomasz and myself should be sending you each year flowers to thank you for taking the time to go through our complex reporting because believe us, sometimes we cry when we draft the reports. That's one thing. But what is even more important from our perspective is how do we manage our equity. If we do not have adequate equity management and if we do not have the right way of thinking about equity, we won't be able to generate value for shareholders. For this reason, we want to transform into a holding. And it's actually -- we went beyond the sphere of planning. We have already started to take some measures, and I will tell you more about them in a moment. Another thing we would like to do is a reorganization of our banking assets. And this is actually an offshoot of the debate that we had on changing our structure to a holding structure. I know that the company has made some promises regarding the future of banking assets. I need to tell you that those promises were made within the context of the existing structure and not in the context of a holding structure. And moving to the holding structure dramatically changes the possibilities. I will make it clear in a moment. I'm about to show you figures that are rough estimates, ballpark figures. So it might be -- the variation might be of a few percentage points one way or the other. But this is not forecasting of the environment in which we will be selling our insurance. Now we're talking about something else. So on the left-hand side, you can see the existing structure of the PZU Group. It's a listed company. It's a company that sells insurance. And this company also exercises supervision over the institutions whose balance sheet are larger than ours and PZU. So this means that we have one structure in charge of 3 functions. And from the perspective of governance, this is hard. It's a great challenge. So what we want to do is to create a holding entity listed on the stock exchange. And the working name for it is PZU Holdco. We know how to carry out this transformation. And of course, the devil is in the detail. But we want the listing to stay the same, and we want the economic value to stay the same. Moreover, the holding entity will not have a license to operate as an insurance company or to carry out the banking activities. It's going to be a holding entity -- it's going to be a financial holding entity carrying out combined activities. This transformation will allow us to create a structure for the group that will be beneficial to us and beneficial for you. So we'll have insurance companies that have a license to operate within this entity. We are going to have management -- entities that manage assets. And they will either report to the holding entity or to the insurance company. We'll see about it. Tomasz and myself will take this decision. And what we'll take into account are the needs and the criteria that we need to apply in equity management. In the health care company, the PZU Health, it's going to be a separate entity, and there's going to be a separate banking entity. And you might think, no, the old man has gone crazy. He became a CEO, drew a graph and now everything is going to be different. Well, no, it's not just an exercise in modifying the structure. It's an exercise actually in equity management. And on the right-hand side, you have the main goals of the transformation. So improving governance, improving transparency. But the main thing that is of interest to us is effective equity management. And I know that some of you have already written some reports that were quite inspiring. So currently, we have an equity surplus of PNL 6.1 billion more or less in the group. And if we don't take any action, then Solvency II at some point starts to apply. There are going to be changes as far as the capital charge to banking assets go. And as a result, our capital ratio automatically goes up. The capital ratio that we need in order to achieve the solvency ratio. So nothing happens. We did not change the structure of assets or liabilities. Just like that, PZU is going to "lose its capital surplus in the amount of almost PNL 5.5 billion, just like that. on the 1st of January 2027. This will be the date when we wake up, we would wake up look into each other's eyes and knowing that our PNL 5.4 billion capital surplus is done. Let's say that we have a capital surplus of PNL 600 million. If this is the case, we will be much more prudent or even conservative as far as the insurance activity go. We would have to assign more -- higher proportion of premiums. This would also force us to be way more conservative as far as investment goes, including investments in growth and development, and we would have 0 possibilities to carry out acquisitions. Over the last couple of weeks, I've been contemplating and I have been contemplating a lot. I was largely supported by Tomasz and a very small team, and we audit some thinking into what needs to be done to guarantee this capital surplus and hence, the idea of the holding structure. This is not us withdrawing the structure, just like that. The idea for the holding, and this is marked by this middle value, and this means 2.5, 3.5 on a plus for the capital surplus even if we have an enforced Solvency II. And the second step is the capital internal model for the business lines, lines where it's viable, where it's feasible. This should give us a boost of PLN 1 billion to PLN 2 billion, and we can't tell you more precisely until we've concluded the analytical works. So again, thanks to the fact that we have restructured into a holding, we are now returning to the capital surplus, which we would -- which we have at the current stage. All right. Breathing in. Well, this is big. Is it not? As I stressed at the start, this is very much unique. This kind of structure has not been present in Europe, neither has been present in the country. This would require the collaboration between very many different stakeholders. Yet we trust we can rely on welcome a positive response on the part of many stakeholders and shareholders. And the fact of the matter is, we will be putting forward a plan how to do that. But time is almost up. 2027 is an important date. It's an important year, and it's moving fast. And we want for these works in question to be concluded much sooner than the end of December 2026. Second of all, of the banks. And let me reiterate, the analysis of the previous Board did not take this new paradigm into account. This new paradigm that might be set up by this new structure of a holding. So as a holding, we exercise much more room for maneuver. And we've got some scenarios. Scenario #1, status quo. This is maintained. If that's the case, we'll have PNL 600 million. Well, it is rather mediocre when you take into consideration the kind of business development what we've got. And apparently, will be very limited in our operations. And there is also this scenario #2, something that we've had a conversation on recently and that was also the idea of my predecessors, Mr. [indiscernible], and the would be acquired by PKZ S.A. Details will come and details will be given to you throughout the upcoming 6 months. If we did not transform into a holding, this would result in a decrease of the ratio within the whole group. But what is more -- what is worse, we'll have a loss on capital by a few million Polish zloty. And we are having conversations with Mr. Stiefel Koski. We exercise very good relations. And we know that if PKZ S.A. has to increase its capital, then this would bring about certain results. We would need to be partaking in that, and it would lower our capital as a result. That is why within a structure of a holding, we want to consider other options that would generate most value for our shareholders. And we'll get back to you with that at the beginning of quarter 3 at the latest or around Q3. So we'll get the report on that. But most important of all, the holding idea, if we have this talk through and confirmed with the regulators, with the shareholders, with the government's part because there are some details to be discussed. Having this done, we know what our field of the game is. And I understand you might have a lot of questions. If I am capable of answering any questions, I will do. I will try to approach your questions together. We are ready. But bear in mind, I've been here in this capacity for as short a time as a month and the holding thing has been discussed only for the last week. Thank you very much and wish us luck. You are now welcome to ask questions. There are a few from the chat. Maybe there are people willing to ask questions here in the room.

Kamil Stolarski from Santander Bank. I would like to ask you this, the trends in the basic results. And by the way, congratulations on the group results part. Last 3 quarters have been record breaking. Looking at numbers, PLN 400 million plus, it went up to PLN 500 million, PLN 600 million plus. The real claims costs are comparatively lower vis-a-vis the expected most claims and the actual claims and this now is on the positive side, PLN 100 million per quarter, more or less. So the question is are these results of quarter 4, 3 and 2, are these results sustainable as we look ahead or maybe there will be the return to the previous results. This is my question number one. Question number two, mass insurance and TPL, was there any one-off event in quarter 4?

Right. Let me begin with the first question. For the methodology, we can think we can conceptualize this in the following manner. If you ascribe a new client to the portfolio as you sell a new insurance product, you can say that's the price for an insurance product to cover the whole compound of the costs that are related to handling this insurance. If there is a coverage and there is some surplus, this surplus is the contract margin. And the contract margin and the surplus can be recognized is proportional to the time of providing the service. This is how much the principle itself establishes. Let us look at the structure now of the subsequent components that you have to cover and the premium with, that is the cost structure, et cetera, and show it. So if we were to be 100 precise, the situation would be as follows expected versus the actual, it stays the same, and it is rather unfeasible for a variety of reasons. We all know that. What is coming into what is coming into being is the gap between the real state and the actual state, something that we inherit in a new year. any other site. Our situation is this. It's been rather difficult to forecast what the distribution will be for the events for the mortality, et cetera, is this substantial accumulation of events and then it will result in a credit and this credit will go on. And I don't know how to call it like is it a fall or maybe we'll be getting back to the prestate. Or maybe there is accumulation, there is a fall, so to say, and it is followed by have COVID debt, that is people were very much concerned and going to a health care facility because those were associated with a very substantial exposure to infections. So we kept avoiding them. Was it rational? I won't give you an answer to this question. But given the fact that we avoided the facilities, well, it brought about very severe ramifications in our health care, especially for the most vulnerable groups of patients with chronic diseases. And chronic diseases would require you of constant medical monitoring and treatment. And that's something that we have to do as well. Look at diabetes and diabetes would in turn lead to amputations and well, basically human tragedies. The quest of the matter is to provide a model under such circumstances is hugely challenging. Basically, it is all about providing 100 or multiple scenarios. There is a multiply that needs to be employed, et cetera. So on our end, we are doing our utmost. But needless to say, we are not happy if we don't hit the target, if we don't -- if our estimates are not in line with the actual state. If the premium for the coverage of course is higher than the actual one, we don't produce ACSM that might be recognized with time. We are only a beneficiary of this overestimation, and this is something that we considered instant. This is a one-off bonus. That's all. It ends the story. And that's something that we rather don't desire. Having to that, well, the analysts who try to model such scenarios are rewarded on the basis of whether or not they hit the target. The better they hit, the more precise they hit, the bigger the bonus and the basic remuneration. So there is this vested economic interest in providing as accurate estimates as possible. Our reality is turbulent, and we might have it hard hitting the target 100%. This -- and so it happened this year, and we had this surplus this year. This is called variance, and it won't be a CSM in the forthcoming periods. So to relate to your question in a straightforward terms, 30% is not sustainable. And therefore, we must clear it. And for it to be sustainable, we should have the results sitting at 21%, 23% and not 29%. So part of the answer, one now for the assessment as we look ahead. Ladies and gentleman, I'm having talks with other colleagues in the Board. And as we speak, we agreed, we won't be fighting for the market share effectively unless we've got a profitable business. There are companies that are able to fight for their market share and have a better offer as far as MTPL goes. And we must improve our offer because if we are serious about increasing our market share, then we will have to improve what we offer to our clients. And this is our clients, and this is the job of the members of the Board who are in charge of this. And now to address your question, I cannot imagine a situation in which we report losses in MTPL if the entire market reports figures in green. MTPL. Well we -- I have a sense that we are not profitable, but it's difficult to say what is the situation of other insurance companies. We do not have any definite reports on that, only some announcements. And in previous quarters, all the insurers were reporting losses. What happened in Q4? First of all, prices went up. I think that we had data on this on one of the slides. There you go. In Q4, prices in MTPL were going up by 8%, 9%. So basically, the segment was scaling up. Many companies were happy about it. But the average price of claims were also going up, and they were going up faster. In Q4, the frequency of the claims were at the level of 93%, 94% of the previous year. And it's below the parameter that we took into account in our forecast. So that's why lower frequency of claims helped us, lower frequency than we expected. And regarding standards, this one works differently than PSR or the fourth standard. According to this standard, if a company is carrying out its operations with inadequate premiums, then you should recognize this loss now and for the future. According to previous standards, you did not have to forecast this loss to put it in your plans, but just to recognize it periodically, monthly, quarterly, however you choose. So in the new standard, you may go under quicker. But if you do not report that your results are lower, then at some point, well, if you don't report it on an ongoing basis, at some point, you will report a major loss. And the higher proportion of disability claims and other claims and their indexation is not included in the price. So we'll see how the situation develops. It might happen that we will need to create a special provision for these events for -- in the year 2025. And now the underlying profit is at 0 plus. So maybe there's one more question regarding motor insurance from Autonomous Research. What is our outlook as far as prices go in the long run? You mentioned that the market is becoming more and more competitive. Can you please elaborate? Actually, we often have to face a piece of -- I mean we have to face criticism that we should just raise prices and we will live happily ever after. But that's not true. For a long time, we were market leaders as far as making these products profitable. And actually, smaller players would find themselves under capital pressure. And at the end of February, which means in the first quarter of 2024, the market has become more competitive. And the question is whether it is just temporary. Is it a part of a cycle or a trend that you can see in the light blue on this slide. It's difficult to say. But this is the source of distortion of data. So we'll continue to work on improving profitability. Mr. Klesyk has made it clear that he is after profitability, but also he wants to have a say in how new value is generated on the market. This means that we need to start to think at least in 2 dimensions. What does it mean? As of now, it's difficult to say. Each month brings new information, new facts, new surprises, positive developments as well. So honestly, I cannot make any predictions or forecasts. The beginning of the year is quite good as far as the value goes, but what is going to happen later, we'll see because we will be reporting the results for the first quarter in May. Another question from Autonomous regarding the new holding structure. Is it going to be possible for you to invest in various sectors once you transform into a holding? Or will you stay focused on the financial and health care sector? Maybe are you planning to diversify and invest in, let's say, energy sector on the defense sector? 9nd hence, the joke that currently that you is an insurance banking and ship operating company. And we have also a number of other companies and so has to be on top of that. So transforming into a holding is supposed to help us to clean, to get rid maybe from -- to get rid of various weird companies from our balance sheet. So I don't -- I cannot imagine a PZU becoming a company that is dealing with the insurance sector, banking sector, defense sector and AI. This is not an option as long as I'm the CEO. From the perspective of the PZU Group and from the perspective of our balance sheet liabilities in particular, we need to find actually the most interesting solutions on the asset side. For instance, I can imagine PZU being engaged in investing in an energy project that will give us some security because by definition, a company like ours and if we attract on top of that third-party money, if we have that level of capital, we need to look for interesting investments. But let me make it clear. We do not want to build together with Tomasz a group that is dealing with all kinds of sectors, including the beauty sector. This is off the table. Are there any questions in the room because I have a few questions from the chat.

Yes. Actually, I do have a question regarding the holding structure. Is it in any way possible that PZU will get rid of its shares in Pekao Bank and in Alior Bank. I'm asking because there were precedents. And also, you talked about your obsession with generating value for shareholders and your -- about your obsession with transparency. So we know the scenario of focusing on insurance alone generates a lot of value for shareholders. We have learned it from the experience of other insurance companies. So is it a scenario that is still on the table or not really?

Ladies and gentlemen, let me make one thing clear. In the banking sector, the return on equity is at 18%. And let's say that the dividend is at 50%. So this gives us a 10% return on equity. theoretically. If we sell it, where can we find a different investment, a stable and predictable investment that will give me a return on equity at 10% -- so this is something that we need to discuss internally, and I will get back to you in a few months once we get our head around it, to put it colloquially. And actually, I think that we can be open about it with Tomasz. We need to think whether we would like to increase or actually decrease our exposure to banks due to consolidation because this does affect capital and the way capital is managed. Currently, we are consolidating our banks, and we need to convince the auditor that we have full control over these banks, and this does not have to be the case in the future. But I don't want to speculate. It's a bit too early to talk about it. Our priority currently is creating a holding structure. Once it is in place, we will do our calculations. I can see Tomasz and Andrzej analyzing figures up to fourth decimal place. If there are no questions in the room, I will read out a few questions that were asked in the chat. Non-motor insurance. Why did you have such a low combined ratio in non-motor insurance in the mass segment? So how does this result from Q4 make you think or make forecasts about the future? Profitability in the mass segment. We need to strike a balance between the growth and profitability. Over the past few months, we have been trying to work together with our customers to win new customers and to close the insurance gap that we have referred to. We have modernized our product. And one additional -- every additional Polish zloty that is added to insurance premium, "costs" less than it did in the past. The purpose was to increase the participation in the actual insurance coverage for our customers. And this translated into profitability of those products. And we have adopted a similar approach as far as the SMEs go in non-life insurance. What still needs to be done is the profitability improvement in certain channels, third-party channels. So I guess you know what I have in mind because our competitors are earning on those products in those channels, and we failed to make profit on them in Q4. That's why we reported a loss in multichannel on those products, and we need to take immediate action to address it. And actually, we already took action and we have already noted improvement. So we need to change the products. I mean what we're doing is changing the product. We're changing our pricing philosophy. We're applying yes, and we're basically lowering the cost for the customers. One question relating to life insurance. For the changing of assumptions, a bigger margin on group insurance in quarter 4 vis-a-vis quarter 3 is very untypical. And was it down to the fact that there is no seasonality or mortality ratios that would be coming into play. They are still present. And there's a number of factors that we need to take into consideration that have [indiscernible] produced this picture. This is what this seasonality is displayed vis-a-vis mortality and this dotted blue line corresponds to seasonality. Whereas mortality went up and the number of claims did not follow suit. And that's something that we experienced for the first time. So apparently, it got translated in the status in question. On the other hand, there is no harmonization and there is no matching and also there is no matching in terms of forecasting. So there are open cohorts, did not follow and this is placed in the results of a given quarter. And that's the result that we've got. And sum of 3 meant the result of Q4 and the margin that was higher compared to Q3. the margin thereof. The last question regarding the costs. All the other operating costs, why were they significantly lower? A quick reminder. These are the costs of the service companies, amongst other things. And there's been a significant improvement on the part of subsidiaries, especially in the health care pivot plant, there's been an improvement for other companies, revenues versus costs, and that's get reported in this line. So here comes my question. Okay. We have exhausted all the questions. Thank you. Again, many thanks, ladies and gentlemen, for the time that have come along, especially I'm going to thank all the people who are here in person. And my promise goes as was the thing in the past, if we promise, we deliver, we'll deliver. And I can assure you, should there be any questions, our Investor Relations department is and shall be very responsive. And we'll be making our presence as well for the quarterly meetings. So if you need any further assistance, just get in touch. I wish you all the best, and we shall see each other in May. Thank you.