The operational and compliance risk management framework in PZU is based on adopted regulations and control mechanisms, covering various organizational levels. ESG risks are incorporated into investment decision-making processes and corporate client risk assessments, allowing for the appropriate pricing of insurance premiums.
PZU Group is broadening its understanding of identified risks in an effort to quantify potential impacts. At the same time, the advancement of work in this area is highly dependent on the risk area. As of the end of 2024, the PZU Group did not have a full quantitative analysis of all identified risks focusing on the most important risks related to climate change, detailed in the “Climate change risks” section.
In 2024, there was no materialization of risks that could materially adversely affect PZU’s business. In 2024, flooding occurred in Central Europe due to intense and prolonged rainfall associated with the Genoa low. The events did not significantly affect PZU’s financial and capital position. At the same time, according to the analysis of climate risks, the financial and capital situation of the PZU Group is also not at risk in the future for both analyzed climate scenarios.
Information on the resilience of strategy and business model
In 2024, as part of its Own Risk and Solvency Assessment (ORSA) process, PZU Group conducted analyses confirming that the Group’s own funds remained at a level sufficient to cover the capital requirement throughout the three-year projection period. This applied to both the baseline scenario and stress scenarios. PZU Group concluded that the implementation of its business strategy was not at risk from a security parameter perspective. The results did not indicate a need for significant changes to capital management policies, including those outlined in the “Capital and Dividend Policy,” planned business activities, or the “Principles for Developing and Creating Products”.
PZU Group’s insurance operations were secured through reinsurance protection, which mitigated the effects of catastrophic events that could negatively impact the financial condition of its insurance companies. This was achieved through obligatory reinsurance agreements, supplemented by facultative reinsurance arrangements.
PZU Group mitigates the risk of a deterioration in financial performance associated with the realization of natural risks, such as storms, floods, droughts and fires, which are linked to climate change, among other factors. To this end, the Group conducted regular analyses of its non-life insurance portfolio’s exposure to natural disasters. The PZU Group divided its portfolio into zones with specific risk levels for floods and hurricanes. Each zone was assigned potential loss values, corresponding to the intensity of the event and its probability of occurrence. As part of the annual process of designing the reinsurance protection program, the PZU Group estimated the distribution of possible catastrophic loss magnitudes.
As part of the concluded reinsurance agreements, the PZU Group has reduced the risk associated with catastrophic losses. This was achieved through a catastrophic non-proportional excess of loss agreement and a non-proportional excess of loss agreement for crop insurance. The PZU Group also mitigated the risk of large individual losses through non-proportional reinsurance agreements, which provided protection for property, technical, marine, aviation, agricultural and third-party liability insurance portfolios, including motor insurance.
Additionally, to further mitigate risk, PZU Group applied both proportional and non-proportional reinsurance for its financial insurance portfolio, covering products such as guarantees and trade credit insurance. The Group also used proportional reinsurance for cyber risk coverage. PZU Group’s reinsurance partners held high credit ratings from S&P, ensuring their strong financial stability and providing security for the company.
In its investment activities, PZU Group adhered to internal procedures that implemented the prudent investor principle. The Group invested only in assets and financial instruments whose risk could be measured, monitored, and managed, ensuring their alignment with solvency needs assessments. PZU Group maintained adequate investment liquidity, allocating funds to high-security, high-quality, and profitable assets.
PZU Group aligned its investments in assets covering technical insurance reserves with the nature and duration of liabilities arising from insurance contracts.
This process was conducted in line with the interests of policyholders. According to the PZU Investment Strategy, PZU Group did not invest in subordinated entities, including strategic investments such as banks within PZU Group. The Group diversified its technical reserve assets, ensuring an appropriate distribution to avoid excessive dependence on a single asset, issuer, or geographic region.
PZU Group identified cybersecurity as an additional area of potential risk. The Group’s ongoing initiatives in this field confirm strategic resilience to identified risks, while its broader sector-wide positive impact on cybersecurity development is described in the “Cybersecurity” section.