Powszechny Zaklad Ubezpiecze? Spólka Akcyjna : Motion to approve the financial statements of PZU SA with justification

About this update from Powszechny Zaklad Ubezpieczen Spolka Akcyjna

Warsaw, 25 February 2026 Management Board of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Motion to the PZU SA Ordinary Shareholder Meeting regarding: the approval of the financial statements of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group for the year ended 31 December 2025, prepared in accordance with the Polish Accounting Standards. Content of the motion: The PZU SA Management Board requests that the Ordinary General Meeting of PZU SA approve the financial statements of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group for the year ended 31 December 2025, prepared in accordance with the Polish Accounting Standards. Reasons: The subject of the Ordinary Shareholder Meeting should be the consideration and approval of the financial statements for the past financial year. In addition, the annual financial statements are subject to approval by the Ordinary Shareholder Meeting no later than 6 months after the balance sheet date (in accordance with Article 395 § 1 and § 2(1) of the Commercial Company Code, Article Article 53(1) of the Accounting Act of 29 September 1994, and § 10(1) and § 18(1) of the Articles of Association of PZU SA). The Management Board of PZU SA, by Resolution No. UZ/28/2026 of 25 February 2026, approved and the PZU SA Supervisory Board, by Resolution No. URN/7/2026 of 25 February 2026, positively evaluated the financial statements of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group for the year ended 31 December 2025, prepared in accordance with the Polish Accounting Standards, and recommended its approval to the PZU SA Ordinary Shareholder Meeting. Present on behalf of the PZU SA Management Board: /Bogdan Benczak/ /Tomasz Kulik/ Attachment: Draft resolution of the PZU SA Shareholder Meeting on approval of the financial statements of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group for the year ended 31 December 2025, prepared in accordance with the Polish Accounting Standards with justifications. RESOLUTION NO. /2026 ADOPTED BY THE ORDINARY SHAREHOLDER MEETING OF POWSZECHNY ZAKŁAD UBEZPIECZEŃ SPÓŁKA AKCYJNA on 18 June 2026 regarding the approval of the financial statements of Powszechny Zakład Ubezpieczeń Spółka Akcyjna for the year ended 31 December 2025, prepared in accordance with the Polish Accounting Standards Pursuant to Article 395 § 2(1) of the Commercial Company Code and § 18(1) of the Articles of Association of PZU SA, the PZU SA Ordinary Shareholder Meeting hereby resolves as follows: § 1 The PZU SA Ordinary Shareholder Meeting, after consideration, approves the financial statements of Powszechny Zakład Ubezpieczeń Spółka Akcyjna for the year ended 31 December 2025, prepared in accordance with the Polish Accounting Standards, including: balance sheet prepared as of 31 December 2025, closing on the assets and liabilities side with a balance sheet total of PLN 60,914,698 thousand (in words: sixty billion nine hundred fourteen million six hundred ninety-eight thousand złotys), non-life insurance technical account for the period from 1 January to 31 December 2025, indicating a technical result to be transferred to the general profit and loss account in the amount of PLN 1,639,653 thousand (in words: one billion six hundred thirty-nine million six hundred fifty-three thousand złotys), general profit and loss account for the period from 1 January to 31 December 2025, indicating a net profit of PLN 5,062,318 thousand (in words: five billion sixty-two million three hundred eighteen thousand złotys), statement of changes in equity showing an increase in equity during the financial year ending 31 December 2025 by the amount of PLN 3 712 166 thousand (in words: three billion seven hundred twelve million one hundred sixty-six thousand złotys), cash flow statement showing a decrease in cash during the financial year ending 31 December 2025 by the amount of PLN 22,808 thousand (in words: twenty-two million eight hundred eight thousand złotys), additional notes to the financial statements for the year ended 31 December 2025. § 2 The Resolution comes into force when adopted. Chair of the PZU SA Ordinary Shareholder Meeting REASONS for the draft resolution of the Ordinary Shareholder Meeting of PZU SA on approval of the Financial Statements of Powszechny Zakład Ubezpieczeń Spółka Akcyjna for the year ended 31 December 2025 prepared in accordance with Polish accounting principles The subject of the Ordinary Shareholder Meeting should be the consideration and approval of the financial statements for the past financial year. Pursuant to Article 395 § 1 and § 2(1) of the Commercial Company Code, Article 53(1) of the Accounting Act of 29 September 1994 (as amended), and § 10(1) and § 18(1) of the Articles of Association of PZU SA, the annual financial statements are subject to approval by the Ordinary Shareholder Meeting no later than 6 months after the balance sheet date. The detailed reasons are contained in the motion of the PZU SA Management Board submitted to the PZU SA Ordinary Shareholder Meeting on the approval of the financial statements of Powszechny Zakład Ubezpieczeń Spółka Akcyjna for the year ended 31 December 2025, prepared in accordance with Polish Accounting Standards. The PZU SA Supervisory Board positively assessed the report and recommends its approval by the Ordinary Shareholder Meeting of PZU SA. Powszechny Zakład Ubezpieczeń Spółka Akcyjna Financial statements for the year ended 31 December 2025 prepared in accordance with Polish Accounting Standards Table of Contents Introduction to the financial statements 4 Introduction 4 The exchange rate of the zloty against the euro 6 Changes in accounting policies during the financial year 6 Changes in the preparation of financial statements and data comparability 7 Corrections of errors from previous years 7 Significant events that occurred after the balance sheet date and are not included in the financial statements 7 Significant events of previous years recognized in the financial statements of the reporting period 7 Significant events related to the reporting period affecting a significant change in the structure of balance sheet items and financial result 7 Management and supervisory bodies of PZU 7 Audit fee payable to the audit firm auditing the financial statements 10 Accepted accounting policies 10 Indication, explanation, and quantification of significant differences between PAS and IFRS 29 Balance sheet 39 Technical revenue account of non-life insurance 42 General profit and loss account 43 Statement of changes in equity 44 Cash flow statement 46 Technical insurance accounts - direct business 48 Technical insurance accounts - inward reinsurance 67 Additional information and explanations 77 Intangible assets 77 Investments 80 Receivables 127 Other assets 133 Prepayments and accruals 136 Movements in impairment losses 139 Equity 141 Subordinated liabilities 144 Technical provisions 144 Estimated salvage, subrogation and grants 149 Other provisions 149 Other liabilities and special-purpose funds 153 Prepayments and accruals 158 Solvency of the insurance company 159 Off-balance sheet items 159 Premiums in property and personal insurance 161 Gross earned premium 162 Reinsurance settlements 163 Amount of gross claims and benefits paid 164 Supplementary data for the technical insurance account 166 Information on the claims handling processes 170 Insurance activity expenses 170 Other net technical charges 172 Other operating income 173 Other operating expenses 173 Interest income and expenses 174 Income tax 175 Share of the net profit (loss) of related parties measured by the equity method 177 Notes on the cash flow statement 177 Other notes and explanations 178 Disputes 178 Headcount 181 Contracts for audit and review of financial statements 181 Related party transactions 182 Other information 193 Introduction to the financial statements Introduction Basic information about the Company Powszechny Zakład Ubezpieczeń Spółka Akcyjna ("PZU," "Company") has its headquarters at Rondo Ignacego Daszyńskiego 4, 00-843 Warsaw. PZU was entered in the National Court Register (KRS) kept by the District Court for the Capital City of Warsaw in Warsaw, 13th Commercial Division of the National Court Register. The core business of PZU according to the Polish Classification of Business Activity and the Statistical Classification of Economic Activities in Europe is property and casualty insurance (65.12). According to the official newsletter of the Warsaw Stock Exchange, the Company is classified in the "Finance" macro sector, "insurance companies" sector. PZU is the parent company of the PZU Group and prepares consolidated financial statements. Period covered by the standalone financial statements These standalone financial statements cover the period of 12 months from 1 January to 31 December 2025. The comparative data refers to the period from 1 January to 31 December 2024. Format of the standalone financial statements The standalone financial statements for 2025 include financial data presented in the layout set forth in Appendix No. 2 to the Regulation on Financial Statements in the prospectus, taking into account the provisions of the Regulation on Accounting for Insurers. Pursuant to Article 45(1f) of the Accounting Act, financial statements shall be prepared in electronic form. In addition, according to Article 3 of EU Delegated Regulation No. 2019/815, issuers shall prepare their annual financial statements in XHTML format. Going concern assumption These standalone financial statements have been drawn up under the assumption that PZU remains a going concern in the foreseeable future, i.e. in the period of at least 12 months after the end of the reporting period. As at the date of signing these standalone financial statements, there are no facts or circumstances that would indicate a threat to the ability of PZU to continue its activity in the period of 12 months after the end of the reporting period as a result of an intentional or an induced discontinuation or a material curtailment of its hitherto activity. Presentation currency Unless otherwise noted, all amounts are shown in thousands of Polish zloty in the standalone financial statements. Discontinued operations Both in 2025 and in 2024, PZU did not discontinue any type of operations. Seasonal or cyclical business The PZU's business is neither seasonal nor subject to business cycles to a significant extent. Glossary The most important terms, abbreviations, and acronyms used in the consolidated financial statements are explained below. Names of companies Balta - AAS "BALTA". Alior Bank - Alior Bank SA. LD - AB "Lietuvos draudimas". Link4 - Link4 Towarzystwo Ubezpieczeń SA. Ogrodowa Inwestycje - Ogrodowa - Inwestycje Sp. z o.o. Pekao - Bank Polska Kasa Opieki SA. PG TUW - Polski Gaz Towarzystwo Ubezpieczeń Wzajemnych in liquidation. PFS - Pekao Financial Services Sp. z o.o. PZU, Company - Powszechny Zakład Ubezpieczeń Spółka Akcyjna. PZU CO - PZU Centrum Operacji SA. PZU Finance AB - PZU Finance AB (publ.) in likvidation. PZU LT GD - UAB "PZU Lietuva gyvybes draudimas". PZU Ukraina - PRJSC IC "PZU Ukraine". PZU Ukraina Życie - PRJSC IC "PZU Ukraine Life Insurance". PZU Zdrowie - PZU Zdrowie SA. PZU Życie - Powszechny Zakład Ubezpieczeń na Życie Spółka Akcyjna. TFI PZU - Towarzystwo Funduszy Inwestycyjnych PZU SA. Tower-Inwestycje - Tower-Inwestycje Sp. z o.o. TUW PZUW - Towarzystwo Ubezpieczeń Wzajemnych Polski Zakład Ubezpieczeń Wzajemnych. Other terms ECL - expected credit losses. WSE - Warsaw Stock Exchange. IRS - Interest rate swap. PZU Group - Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group. KNF - Polish Financial Supervision Authority. Labor Code - Act of 26 June 1974 - the Labor Code. Commercial Company Code - Act of 15 September 2000 entitled Commercial Company Code. CRS - National Accounting Standards issued by the Accounting Standards Committee and effective as of 31 December 2025. LRC - Liability for remaining coverage. MSSF - International Financial Reporting Standards, as endorsed by the European Commission, published and in force as at 31 December 2025. NBP - National Bank of Poland. NBU - National Bank of Ukraine. Tax Group - PZU Tax Group - on 10 November 2023, a Tax Group agreement was signed, covering 14 companies: PZU, PZU Życie, Link4, PZU CO, PZU Pomoc SA, Ogrodowa-Inwestycje sp. z o.o., PZU Zdrowie SA, Tulare Investments sp. z o.o., TFI PZU, Ipsilon sp. z o.o., PZU Finanse sp. z o.o., PZU LAB SA, Omicron BIS SA, PZU Projekt 01 SA. The Tax Group was established for a period of 3 years - from 1 January 2024 to 31 December 2026 - and the Head of the First Mazowiecki Tax Office in Warsaw issued a registration decision on 13 December 2023. PZU is the parent company representing the Tax Group. The Tax Group performs settlements with the Tax Office on a monthly basis. PZU pays advances for corporate income tax that are due from all the companies to the Tax Office, while the companies transfer the CIT advances related to their business activities to PZU. Banking Law - the Act of 29 August 1997 entitled Banking Law. PAS - Polish Accounting Standards that include the Accounting Act of 29 September 1994 and regulations issued thereunder. Capital Requirements Regulation, CRR - Regulation (EU) 2013/575 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012. EU Delegated Regulation 2019/815 - Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards for the specification of a uniform electronic reporting format. Regulation on financial statements in the prospectus - Regulation of the Finance Minister of 5 October 2020 on the scope of information disclosed in financial statements and consolidated financial statements required in prospectuses for issuers with their registered offices in the Republic of Poland to which Polish accounting standards apply. Financial Instruments Regulation - Regulation of the Minister of Finance of 17 November 2024 on the recognition, valuation methods, as well as disclosure and presentation of financial instruments. Regulation on accounting of insurers - Regulation of the Minister of Finance of 12 April 2016 on the special accounting principles for insurance and reinsurance undertakings. Consolidated financial statements - consolidated financial statements of the PZU Group prepared in accordance with IFRS for the year ended 31 December 2025. UKNF - Office of the Polish Financial Supervision Authority. Insurance Activity Act - Act of 11 September 2015 on Insurance and Reinsurance Activity. Accounting Act - Accounting Act of 29 September 1994. ZFŚS - Company Social Benefits Fund created in accordance with the Act of 4 March 1994 on Company Social Benefits Fund. PZU Ordinary Shareholder Meeting - Ordinary Shareholder Meeting of Powszechny Zakład Ubezpieczeń Spółka Akcyjna. The exchange rate of the zloty against the euro The following FX rates have been used for these financial statements: EUR / PLN 1 January - 31 December 2025 1 January - 31 December 2024 31 December 2025 31 December 2024 Average exchange rate 4.2372 4.3042 4.2267 4.2730 Highest exchange rate in the period 4.2778 4.3530 n.a. n.a. Lowest exchange rate in the period 4.1575 4.2678 n.a. n.a. These exchange rates are: for items in the balance sheet - the average exchange rates of the National Bank of Poland as of the balance sheet date; for items in the profit and loss account and cash flow statement - the exchange rates calculated as the arithmetic average of the National Bank of Poland exchange rates in effect on the last day of each month of the period. Changes in accounting policies during the financial year In 2025, no changes were made to the accounting policies. Changes in the preparation of financial statements and data comparability During the 12 months ended 31 December 2025, there were no changes in the preparation of the financial statements other than those described below. On 31 December 2025, PZU applied the changes resulting from the Regulation of the Minister of Finance and Economy of 30 December 2025 taking effect, which amended the Regulation on the special accounting principles for insurance and reinsurance undertakings. which, among other things, introduces additional disclosure requirements and organizes the scope of application by insurance companies of the provisions of the Regulation of the Minister of Finance of 17 November 2024 on the recognition, valuation methods, as well as disclosure and presentation of financial instruments. . Corrections of errors from previous years The standalone financial statements do not include corrections of errors from previous years. Significant events that occurred after the balance sheet date and are not included in the financial statements No significant events occurred after the balance sheet date that should be included in the standalone financial statements. Significant events of previous years recognized in the financial statements of the reporting period No significant events of previous years have occurred as of the date of signing the standalone financial statements, which should be included in the standalone financial statements. Significant events related to the reporting period affecting a significant change in the structure of balance sheet items and financial result As of the date of signing of the standalone financial statements, no significant events relating to the reporting period were identified that would affect a material change in the structure of balance sheet items. Management and supervisory bodies of PZU PZU Management Board From 1 January 2025, the composition of the Management Board of PZU was as follows: Artur Olech - President of the PZU Management Board; Maciej Fedyna - Member of the PZU Management Board; Bartosz Grześkowiak - Member of the PZU Management Board; Elżbieta Häuser-Schöneich - Member of the PZU Management Board; Tomasz Kulik - Member of the PZU Management Board; Tomasz Tarkowski - Member of the PZU Management Board; Jan Zimowicz - Member of the PZU Management Board. On 27 January 2025, the PZU Supervisory Board dismissed Artur Olech, who served as the President of the PZU Management Board, from the PZU Management Board. That same day, the PZU's Supervisory Board passed a resolution to delegate a Member of the PZU's Supervisory Board, Andrzej Klesyk, to temporarily perform the duties of the President of the PZU's Management Board, until the appointment of the President of the PZU's Management Board, but for a period not exceeding 3 months. The resolution came into force upon its adoption. On 27 February 2025, the PZU Supervisory Board adopted a resolution to appoint Andrzej Klesyk to the PZU Management Board and entrusted him with the function of the PZU Management Board President, subject to approval by the KNF. Until such approval is obtained, the PZU Supervisory Board entrusted Andrzej Klesyk with discharging the duties of the President of the Management Board in the scope admissible by relevant law. The resolution came into force upon its adoption. The appointment was effective as of 3 March 2025, for a joint term of office, encompassing three full financial years 2023-2025. On 2 July 2025, the KNF unanimously approved the appointment of Andrzej Klesyk as the President of PZU. On 7 August 2025, PZU's Supervisory Board dismissed Andrzej Klesyk from his position as the President of PZU and from the PZU Management Board. The PZU Supervisory Board also passed a resolution to temporarily entrust PZU Management Board member Tomasz Tarkowski with the duties of the President of PZU until the appointment of the President of PZU. On 24 September 2025, the PZU Supervisory Board adopted a resolution to appoint Bogdan Benczak to the PZU Management Board and entrusted him with the function of the PZU Management Board President, subject to approval by the KNF. Until the KNF's approval is obtained, the Supervisory Board of the Company has entrusted Mr Benczak with discharging the duties of the President of the Management Board in the scope admissible by relevant law. The resolution came into force upon its adoption. The appointment was effective as of 25 September 2025, for a joint term of office, encompassing three full financial years 2023-2025. On 22 December 2025, KNF approved the appointment of Bogdan Benczak as the President of the PZU Management Board. From 25 September 2025 to the date of signing the standalone financial statements, the PZU Management Board consisted of the following persons: Bogdan Benczak - President of the PZU Management Board; Maciej Fedyna - Member of the PZU Management Board; Bartosz Grześkowiak - Member of the PZU Management Board; Elżbieta Häuser-Schöneich - Member of the PZU Management Board; Tomasz Kulik - Member of the PZU Management Board; Tomasz Tarkowski - Member of the PZU Management Board; Jan Zimowicz - Member of the PZU Management Board. PZU Supervisory Board From 1 January 2025, the composition of the Supervisory Board of PZU was as follows: Marcin Kubicza - Chairman of the Supervisory Board; Małgorzata Kurzynoga - Vice Chairman of the Supervisory Board; Anna Machnikowska - Secretary of the Supervisory Board; Michał Bernaczyk - Member of the Supervisory Board; Anita Elżanowska - Member of the Supervisory Board; Filip Gorczyca - Member of the Supervisory Board; Michał Jonczynski - Member of the Supervisory Board; Andrzej Kaleta - Member of the Supervisory Board; Wojciech Olejniczak - Member of the Supervisory Board; Adam Uszpolewicz - Member of the Supervisory Board. On January 10, 2025, the Extraordinary Shareholder Meeting of PZU dismissed Wojciech Olejniczak as Member of the PZU Supervisory Board. On January 21, 2025, the Extraordinary Shareholder Meeting of PZU appointed Andrzej Klesyk as Member of the PZU Supervisory Board. On February 28, 2025, Andrzej Klesyk submitted his resignation from serving in the capacity of a PZU Supervisory Board Member, effective as of the end of March 2, 2025. On 25 June 2025, the Ordinary Shareholder Meeting of PZU dismissed Michał Bernaczyk from the PZU Supervisory Board, and appointed Beata Stelmach and Maciej Szwarc to the PZU Supervisory Board. On 22 October 2025, the Minister of State Assets, acting on behalf of the State Treasury of the Republic of Poland, appointed Kazimierz Karolczak as a member of the Supervisory Board of PZU SA for a term of office, pursuant to § 20(7) of the Articles of Association of PZU SA. On 3 November 2025, Mr. Filip Gorczyca tendered his resignation from serving in the capacity of a PZU SA Supervisory Board Member, effective as of 3 November 2025. On 23 December 2025, the Extraordinary Shareholder Meeting of PZU appointed Jarosław Antonik as Member of the PZU Supervisory Board. From 23 December 2025 to the date of signing the standalone financial statements, the composition of the PZU Supervisory Board was as follows: Marcin Kubicza - Chairman of the Supervisory Board; Małgorzata Kurzynoga - Vice Chairman of the Supervisory Board; Anna Machnikowska - Secretary of the Supervisory Board; Anita Elżanowska - Member of the Supervisory Board; Jarosław Antonik - Member of the Supervisory Board; Michał Jonczynski - Member of the Supervisory Board; Andrzej Kaleta - Member of the Supervisory Board; Kazimierz Karolczak - Member of the Supervisory Board; Beata Stelmach - Member of the Supervisory Board; Maciej Szwarc - Member of the Supervisory Board; Adam Uszpolewicz - Member of the Supervisory Board. PZU Group Directors The Management Board of the parent company and PZU Group Directors are assumed to be the key management of PZU. The positions of PZU Group Directors have been established to ensure a consistent and effective management model for PZU and PZU Życie, based on a functional division of responsibilities for the companies' various business areas. The Directors of the PZU Group generally oversee analogous areas in PZU and PZU Życie. From 1 January 2025, the following persons were PZU Group Directors at PZU: Sławomir Bilik; Jarosław Mastalerz; Małgorzata Skibińska; Paweł Wajda; Iwona Wróbel; Paweł Wróbel. On 15 January 2025, Igor Radziewicz-Winnicki took over as Group Director at PZU; As of 31 January 2025, the position of Group Director at PZU was no longer held by Jarosław Mastalerz and Paweł Wajda. On 19 February 2025, Paweł Wróbel was dismissed from the position as PZU Group Director at PZU SA, effective 30 April 2025. As of 28 February 2025, the position of Group Director at PZU was no longer held by Sławomir Bilik. On the same day, Michal Kopyt was appointed Group Director at PZU, effective as of 1 March. On 31 March 2025, Igor Radziewicz-Winnicki was dismissed from his position as Group Director at PZU. On 16 April 2025, Artur Fromberg was appointed PZU Group Director at PZU. On 30 April 2025, the position of PZU Group Director at PZU was no longer held by Małgorzata Skibińska. On 30 May 2025, with effect from 1 June 2025, Katarzyna Majewska was appointed as Group Director at PZU. On 6 June 2025, with effect from 9 June 2025, Andrzej Mikosz was appointed as Group Director at PZU. On 26 June 2025, with effect from 1 July 2025, Rafal Cegiela was appointed as Group Director at PZU. On 4 November 2025, Michał Świtalski was appointed PZU Group Director at PZU. From 4 November 2025 to the date of signing the standalone financial statements, the following persons were PZU Group Directors: Rafał Cegieła; Artur Fromberg; Michał Kopyt; Katarzyna Majewska; Andrzej Mikosz; Michał Świtalski; Iwona Wróbel. Audit fee payable to the audit firm auditing the financial statements Information on the audit fee to the audit firm auditing the financial statements, presented in accordance with the provisions of section 12.a, subsection b of Part "B. Supplementary Explanatory Notes" of Appendix No. 3 to the Regulation on financial statements in the prospectus, is included under section 33.1 Supplementary information and notes. Accepted accounting policies According to Article 45(1a) of the Accounting Act, financial statements of issuers of securities admitted to trading on one of the regulated markets of the European Economic Area countries may be prepared in accordance with IFRS. As the PZU Meeting of Shareholders has not made the decision referred to in Article 45(1c) of the Accounting Act to prepare financial statements in accordance with IFRS, PZU's standalone financial statements for the financial year ended 31 December 2025 were prepared in accordance with the Accounting Act and the implementing regulations issued thereunder, among others: Regulation on accounting of insurers; Regulation on financial Instruments; and the adopted accounting principles (policies), hereinafter collectively referred to as the PAS and taking into account the provisions of the Insurance Activity Act applicable to the standalone financial statements. In matters not regulated by the Accounting Act or the implementing acts issued on the basis thereof, Polish Accounting Standards or IFRS are applied accordingly. Intangible assets Intangible assets are recognized if it is probable that they will result in future economic benefits that can be associated with these assets and include property rights acquired by PZU, included in fixed assets, suitable for economic use, with an expected useful life of more than one year, intended to be used for the purposes of PZU. Intangible assets include, in particular: computer software, economic copyrights, licenses and concessions. Intangible assets are measured at purchase prices or production costs less amortization charges and permanent impairment losses. Intangible assets are amortized using the straight-line method over their expected useful lives, which corresponds to their estimated economic useful lives, in accordance with the amortization schedule adopted by PZU, using annual amortization rates ranging from 20% to 50%. In justified cases, after a case-by-case analysis, a different amortization rate may be used corresponding to the expected useful life of the intangible assets. Intangible assets with a unit value not exceeding PLN 3,500 are recognized as costs in the month they are put into use. Investments Investments in real properties Investments in real properties include: owned land, perpetual usufruct rights to land, structures and buildings, as well as separately owned premises, cooperative ownership rights to apartments, cooperative rights to commercial premises, construction investments and advances for construction investments. Investments in real properties are valued at purchase price or production cost, taking into account revaluations made on the basis of separate regulations (the last such revaluation was made on 1 January 1995, and its effects were recognized in the revaluation reserve), less the value of accumulated depreciation as of the balance sheet date, taking into account permanent impairment losses. Buildings in poor condition are valued at the recoverable amount, which may be PLN 0. The fair value of the land includes restrictions on disposal under leases and the technical condition of the development. Real property is amortized using the straight-line method over their expected useful lives, which corresponds to their estimated economic useful lives, in accordance with the amortization schedule adopted by PZU. Annual amortization rates for the key components of the category are presented below. In justified cases, PZU may set amortization rates individually in accordance with the applicable amortization schedule. Owned land and construction investments and advances for investments are not subject to amortization. Asset category Amortization rate Cooperative ownership rights to apartments, cooperative rights to commercial premises 2.5% Buildings and structures 1.5 - 10% Permanent impairment loss At each balance sheet date, it is determined whether there are indications of impairment of property value (e.g., decline in market value, deterioration of lease terms, physical damage, regulatory changes). If there are indications, a recoverability test is performed in which the recoverable amount is determined as the higher of: fair value less costs of sale (based on market valuations or expert opinions); value in use (discounted future cash flows generated by the property). The value in use is assessed by considering: forecast period: until the end of the lease agreements, taking into account likely extensions; discount rates: reflecting market risk and cost of capital; rent forecasts, vacancy rates, cost of living. Real property impairment losses is determined in the amount of the difference between the net book value of the property and the recoverable amount. Reversal of an impairment loss is possible when market conditions improve to the level of the carrying value that would have been determined in the absence of the impairment loss. Ownership interest or shares in related parties Ownership interest or shares in related parties are measured by the equity method. The equity method consists in measuring the ownership interest or shares in a related party at its purchase price plus or minus, attributable to PZU, increases or decreases in the equity of the related party that occurred from the date of taking control, obtaining joint control or significant influence until the balance sheet date, with the share in increases or decreases in the equity of the related party adjusted by: impairment of goodwill (carried out using the straight-line method over the economic useful life); impairment of the difference in the valuation of the net assets at their fair values and book values attributable to the reporting period. Differences in the valuation of net assets at their fair values and book values mainly include intangible assets and other revaluations identified during the purchase price allocation process, such as: trademarks - amortized using the straight-line method, most often over a period identical to the amortization period of goodwill; other revaluations to fair value of those assets and liabilities of related parties that were not measured at fair value; recognition of the impact of deferred tax on the net assets of the related parties resulting from the differences indicated above. The effects of valuing shares in related parties using the equity method are recognized as follows: revaluations of shares in related parties to values above their purchase price are recognized in revaluation reserve; revaluations of shares in related parties to values below their purchase price are recognized in the profit and loss account. Permanent impairment loss At the end of each financial year and whenever there are indications that impairment may have occurred, shares of related parties of significant value and goodwill are subjected to impairment tests. Permanent impairment losses are recognized in the profit and loss account. Goodwill impairment test is based on a comparison of the recoverable amount of an individual entity or cash-generating unit with its carrying amount. If the recoverable amount, expressed as the higher of either: fair value less costs to sell or the value in use of currently expected future net economic benefits, discounted using the current market rate of return for similar financial assets, is less than the carrying amount, an impairment loss is created, which is charged to the profit and loss account. For entities listed on an active market, the recoverable amount is estimated based on fair value. Determining the recoverable amount of an individual entity or cash-generating unit requires professional judgment and evaluation of the assumptions made, among others: the economic role of the entity, the discount rate, the risk-free rate, the beta coefficient, the activity of the market in which the entities are listed, and projected cash flows. Financial instruments Financial instruments are classified at the time of purchase into the following categories: financial assets and financial liabilities held for trading; held-to-maturity financial assets; loans granted and own receivables; available-for-sale financial assets; financial liabilities other than those held for trading. Financial instruments are recognized in the books on the date of the contract at the fair value of the expenses incurred or other assets transferred in exchange, while financial liabilities are recognized at the fair value of the amount received or other assets received. Transaction costs directly attributable to acquisition of financial assets increase their initial value, and transaction costs related to issuing or incurring financial liabilities decrease the initial value of such liabilities. The fair value of a financial instrument at the time of initial recognition is usually its transaction price, unless the nature of the instrument indicates otherwise. In the case of financial instruments that generate interest income, interest accrues from the day after the settlement date of the transaction. The fair value of debt securities includes interest accrued as of the balance sheet date in accordance with the terms of issue with the full value of interest purchased but not settled, as well as interest granted but not paid. Shares whose fair value cannot be reliably estimated are valued at purchase cost. The outflow of financial instruments is determined according to the "first-in-first-out" principle" ( FIFO). Description of fair value valuation techniques Debt securities and borrowings Fair values of debt securities are determined on the basis of quotations publicly available on an active market or valuations published by an authorized information service, and if there are no such quotations - using valuation models containing references to published price quotations of the underlying financial instruments, interest rates and stock exchange indices. PZU conducts an internal review of the valuations published by the authorized information service comparing them to the valuations available from other sources based on data which can be observed on the market. The fair value of borrowings and debt securities for which an active market does not exist is measured using the discounted cash flow method. For debt instruments based on a variable interest rate, the reference curve reflecting the level of risk-free rates for the discounting of future flows is developed on the basis of an appropriate swap curve for the respective currency. However, for instruments based on a fixed interest rate - based on the quotes of treasury bonds in the given currency. For unlisted loans and bonds, in addition to the individual spread quantifying the specific risk of a given debt instrument, a market sector spread published in news services is added to reflect the pricing of the risk for the relevant sector for the issuer's business sector and its rating. Equity-based financial assets The fair values of listed equity-based financial assets are determined on the basis of quotations publicly available on an active market. Participation units and investment certificates of mutual funds Fair values of participation units and investment certificates of mutual funds are measured using the value of the participation units and investment certificates published by the mutual fund management companies. Private Equity funds The fair value of Private Equity funds is determined on the basis of information provided by the entities responsible for managing and operating these investments. If more than 31 days elapse since the last announcement of the fund's net asset valuation, reliable determination of fair value becomes impossible. Then, the share in the Private Equity fund is valued at the purchase price, determined as the fair value on the date of the last revaluation. Derivatives For derivatives quoted on an active market, the fair value is considered to be the closing price as at the balance sheet date. The fair value of derivatives not quoted on an active market, including forward contracts and interest rate swaps (IRSs) is measured using the discounted future cash flow method. The rates from OIS curves (overnight indexed swaps), taking into account the currency of the security deposit provided for the instrument, are used to discount cash flows. The fair value of options is measured using the Black-Scholes model (plain vanilla options) or as the expected value of the option payoff function discounted as at the valuation measurement date (Asian or basket options). The expected value of the payoff function is calculated using the Monte Carlo modeling method. Derivatives are recognized in the balance sheet under "Other investments" of assets or under "Other liabilities" of liabilities. Changes in the fair value of non-hedging derivatives are recognized in the profit and loss account of the reporting period. Fair value hierarchy On the basis of the input data for fair value measurement, the individual assets and liabilities for which fair value has been presented have been classified to the following levels: level I - assets and liabilities measured based on quoted prices (unadjusted) from active markets for identical assets and liabilities. This level includes: − liquid quoted debt securities; − shares and investment certificates quoted on exchanges; − derivatives quoted on exchanges; level II - assets and liabilities whose measurement is based on input data other than quoted prices included within level I, which can be observed on the market, either directly (as prices) or indirectly (derived from prices). This level includes: − quoted debt securities carried on the basis of the valuations published by an authorized information service; − derivatives - e.g. FX Swap, FX Forward, IRS, CIRS, forward rate agreements; − participation units, investment certificates of mutual funds and participation titles issued by mutual investment institutions valued through a model using observable inputs, i.e., the most recent net asset value per unit, investment certificate or participation title at the time of valuation, as announced by the fund manager or mutual investment institution. level III - assets measured based on input data unobserved on the existing markets (unobservable input data). This level includes: − unquoted debt securities and non-liquid quoted (for which no spread calibration is possible due to the lack of an active market) debt securities (including non-treasury debt securities issued by other financial entities, non-financial entities), measured using models based on discounted cash flows; − investment properties or properties held for sale measured using the income method or the residual method or the comparative method. In a situation in which the measurement of an asset or liability is based on input data classified in different levels of the fair value hierarchy, the measured asset is assigned to the lowest level from which the input data are taken, provided that they have a significant impact on the overall measurement. The value of the measurement of components of assets or liabilities qualified in level III is affected to significant extent by unobservable input data. Measured assets Unobservable data Description Impact on measurement Non-liquid bonds and loans Credit spreads Spreads are observed on all bonds (their series) or loans of the same issuer or a similar issuer. These spreads are observed on the dates of issue of new bond series, dates of conclusion of new loan agreements and dates of market transactions on the receivables following from such bonds and loans. Negative correlation Investment property and property held for sale Capitalization rate Capitalization rate is determined through analysis of rates of return obtained in transactions for similar properties. Negative correlation Construction costs Construction costs are determined based on market construction costs less costs incurred as at the date of measurement. Positive correlation Measured assets Unobservable data Description Impact on measurement Monthly rental rate per 1 m2 of relevant space or per parking space Rental rates are observed for similar properties of similar quality, in similar locations and with a similar size of leased space. Positive correlation Derivatives Model parameters Currency options are measured based on the Garman-Kohlhagen option pricing model (and in the case of barrier and Asian options based on the so-called extended Garman-Kohlhagen model). Exotic options embedded in deposit agreements and their offsets are measured using the Monte-Carlo technique, assuming a geometric Brownian motion model for risk factors. Own issues and subordinated loans Issue spread above the market curve If the historical spread of issues above the market curve is used, these issues are classified at level III of the fair value hierarchy. Negative correlation Equity instruments not quoted on an active market Quotations of financial services, current value of future forecast profit or loss of the company or measurement models based on available market data. Reclassification between fair value hierarchy levels If the method of measurement of assets or liabilities changes because of e.g. losing (or obtaining) access to quotations observed on an active market, such assets or liabilities are reclassified between levels I and II. Assets or liabilities are reclassified between Levels II and III (or accordingly between Levels III and II) when: there is a change in the measurement model resulting from the application of new unobservable factors (or accordingly observable ones); or previously used factors that had a significant impact on the measurement are no longer observable (or accordingly become observable) on the active market. Classification of financial instruments Financial instruments held for trading Financial instruments held for trading include assets acquired for the purpose of generating economic benefits from short-term price changes and fluctuations in other market factors, or with the intention of selling, in the short term, and other financial assets, regardless of the intention behind the contract, if they are a component of a portfolio of similar financial assets that have a high probability of realizing the anticipated economic benefits in the short term, and derivatives, unless they are considered as hedging instruments. Financial instruments held for trading also include obligations to deliver borrowed securities and other financial instruments when an entity enters into a short sale agreement. Financial assets classified by the entity as held for trading are not reclassified to other categories. Financial instruments held for trading are measured at fair value. Held-to-maturity financial assets Held-to-maturity financial assets include financial assets not classified as loans granted and own receivables, for which the contracts entered into establish the maturity of repayment of the nominal value and specify the right to receive at fixed or determinable dates economic benefits, such as interest, provided that PZU intends and is able to hold these assets until they become mature (in particular, debt securities). This classification is largely based on the subjective assessment of the PZU Management Board, which, in making its analysis, determines its intention and ability to hold these financial instruments until maturity. The assessment is based on an analysis of PZU assets and financial position, and the matching of its assets and liabilities. Held-to-maturity financial assets are valued as of the balance sheet date at adjusted purchase price, including permanent impairment losses. Loans granted and own receivables Loans granted and own receivables include, regardless of their maturity date, financial assets arising from the issuance of domestic means of payment, foreign currency or foreign exchange directly to the debtor or issuer. Issuing directly to the debtor or issuer domestic currency, foreign currency or foreign exchange also includes transfer to an intermediary who, in the name and on behalf of the debtor or issuer, respectively, obtains financing for the debtor or conducts the issuance of debt instruments in the primary market Loans also include buy-sell-back transactions, reverse repo and term deposits with credit institutions regardless of the maturity of the deposit. Loans granted, including term deposits and own receivables, are recognized at adjusted purchase price including permanent impairment losses. Received and accrued interest on term deposits with credit institutions attributable to the reporting period is shown under "Income from term deposits with credit institutions" in the general profit and loss account. Available-for-sale financial assets Available-for-sale financial assets include assets not classified in the categories described above, i.e.: financial instruments held for trading; held-to-maturity financial assets; loans granted and own receivables. Available-for-sale financial assets are measured at fair value, and when it is not possible to determine it reliably - at purchase price. The difference between the fair value of available-for-sale financial assets and their purchase price or, in the case of debt instruments, the adjusted purchase price, is recognized in the revaluation reserve. The effects of revaluation of available-for-sale debt instruments to adjusted purchase price are recognized in the profit and loss account. If a permanent impairment loss on available-for-sale instruments occurs, the valuation losses previously recognized in the revaluation reserve are recognized in the general profit and loss account. If the reason for the asset impairment loss ceases to exist, the equivalent of all or an appropriate portion of the previously made impairment loss is recognized in the general profit and loss account. Transactions of purchase and sale of financial instruments, the commercial substance of which is different from the legal substance of the transaction Conditional buy-sell-back and sell-buy-back transactions do not imply a transfer of rights and obligations related to a given financial instrument; for this reason, the above transactions are classified as loans or liabilities, respectively. These transactions are valued at adjusted purchase price. Financial liabilities other than those held for trading Financial liabilities other than those held for trading include debt securities issued (e.g., own bonds), which are measured at amortized cost through the effective interest rate (including fees, commissions and transaction costs). Permanent impairment loss of financial assets An assessment is performed at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired permanently. If there is objective evidence of permanent impairment arising from loss events that occurred after the initial recognition of financial assets and causing a decrease in expected future cash flows then appropriate impairment losses are recognized against costs of the current period. No expected permanent impairment losses are recognized as a result of future events, no matter how likely they are to occur. Objective evidence of permanent impairment includes information about the following loss events, among others: significant financial difficulty of the issuer or debtor; a breach of contract, such as a default or delinquency in interest or principal payments; an investor or creditor providing an issuer or debtor, for economic or legal reasons arising from the borrower's financial difficulties, with support that the lender would not otherwise provide; high probability of bankruptcy or other financial reorganization of the issuer or debtor due to its financial condition; disappearance of an active market, on which the financial asset is listed, due to financial difficulties of the issuer or debtor; obtaining information about negative changes in the status of payments made by issuers or debtors in a group of financial assets with economic characteristics and risks analogous to those of the financial asset under assessment; adverse changes in the economic environment of such issuers or debtors indicating that recovery of the carrying value of the financial asset will not be possible; a prolonged decline in the fair value of financial assets below the adjusted purchase price; significant adverse changes in the technological, market, economic, or legal environment in which the issuer of capital instruments operates, which indicate that the value of the financial asset may not be recovered. If there is evidence of permanent impairment loss on available-for-sale financial instruments, losses previously recognized in the revaluation reserve are recognized in the profit and loss account. permanent impairment losses on assets are determined for: assets held-to-maturity assets and loans - in the amount of the difference between the carrying amount of the asset and the present value of the estimated future cash flows, discounted using the effective interest rate determined at initial recognition (original effective interest rate); assets that are not debt financial instruments measured at fair value - in the amount of the difference between the purchase price of the financial asset and its fair value determined at the valuation date; debt financial assets measured at fair value, in the amount of the difference between the adjusted purchase price of the financial asset and its fair value determined at the valuation date; other financial assets - as the difference between the value of the asset as shown in the books and the present value of future cash flows, discounted using the current market interest rate applied to similar financial instruments. Permanent impairment losses on equity instruments listed on regulated markets, participation units in open-end investment funds and investment certificates of mutual funds classified as available for sale may be made if all of the following conditions are met: the negative difference between the present value and the purchase value is at least 30% of the purchase value; the value of the asset at the end of each of the 12 consecutive months was less than the purchase value. Permanent impairment loss on debt instruments listed on regulated markets, classified as available-for-sale, may be made if the decline in fair value below the adjusted purchase price is more than 12 consecutive months. No impairment loss is recognized if the events referred to above are considered to be reversible within 6 months of the balance sheet date or there are other indications of the temporary nature of the declines. Foreign investments Foreign investments are investments located outside Poland. The location of investments determines: in the case of assets listed on regulated markets - the country of their issuer, in the case of other investments - the place of their realization, which means, in particular: for debt securities, loans and receivables and other financial instruments with a guaranteed yield - the country of residence of the issuer, the country of the borrower, the country of the debtor; for shares and other financial instruments giving a right to participate in the capital - the registered office of that company; for participation units and investment certificates of mutual funds or other mutual funds - the country of residence of the manager of the said fund. Hedge accounting The method of recognizing the results of the valuation of the hedging item and the hedged item depends on the type of hedge. Before a hedge is initiated, it shall be classified as a fair value hedging or cash flow hedging. For fair value hedges, gains or losses from changes in the fair value of the hedging instrument are recognized in the profit and loss account. Gains or losses on the fair value measurement of a cash flow hedging instrument, in the portion deemed to be an effective hedge, are recognized in the revaluation reserve. The effect of revaluation of the hedging instrument in the portion determined to be an ineffective hedge is included in income or expenses of the investment activity. For cash flow hedging of floating rate debt financial instruments involving the conversion of a floating rate to a fixed rate (through an interest rate swap), amounts recognized in equity are reclassified to current period gains and losses in the same period or periods in which the hedged scheduled cash flows affect current period gains and losses. Deposits with ceding enterprises Deposits with ceding enterprises include claims and premium deposits retained by insurance companies to which PZU provides reinsurance coverage. They are part of the payments due to PZU, but retained as collateral for future claims for damages. Deposits with ceding enterprises are valued at the amount required to be paid, determined in accordance with the terms and conditions of the reinsurance treaty, taking into account, where the deposit is a financial instrument, also the valuation of that instrument and permanent impairment losses. Receivables Receivables are recorded at the value established at their inception. As of the balance sheet date, receivables are recognized at the amount due, less permanent impairment losses. Allowances for uncollectible or doubtful receivables are created based on an analysis of the debtors' assets and financial situation, an analysis of the age structure of the receivables and the collection history of the receivables, thus assessing the degree of probability of payment. Receivables on direct insurance Receivables on direct insurance include amounts due from policyholders for installment premiums which are not yet due and past due premiums, amounts due from insurance intermediaries, i.e., insurance brokers, agents and other intermediaries, and other receivables. Permanent impairment loss PZU reviews receivables from policyholders to determine whether there are indications that they may be permanently impaired. A cumulative assessment of permanent impairment of receivables by homogeneous risk groups is performed, as a result of which a general allowance is estimated. The general allowance is estimated on the basis of the adopted model for assessing permanent impairment in the value of receivables. In the model, the allowance is determined through a combined assessment of permanent impairment of receivables from policyholders grouped according to similar credit risk characteristics. For matured receivables, an age structure is prepared, depending on the past due period. The general allowance is calculated in separate ranges of past due periods, based on the collectability ratios determined through historical analysis. For receivables before maturity, the value of the receivable that is likely to become due is determined based on a historical analysis of the percentage of the ratio of receivables that are not paid before maturity. An allowance is made against this amount of receivables in the amount of the collection rate of matured receivables for the shortest overdue period. Impairment losses on direct insurance receivables are included in other technical expenses. Reinsurance receivables Reinsurance receivables include receivables from settlements with cedents, reinsurers and reinsurance brokers arising from inward reinsurance and outward reinsurance and retrocession. These receivables relate in particular to the reinsurers' share of claims and benefits paid by the insurer, reinsurance commissions and reinsurers' profit shares. Impairment losses on reinsurance receivables are included in other technical expenses. Other receivables Other receivables include, among others, receivables from dividends due, receivables from derivative (collateral) deposits, receivables from settlements within the Tax Group, receivables from the budget, and receivables for acting as an emergency adjuster and provision of insurance brokerage. Impairment losses on other receivables are included in other operating expenses. Property, plant and equipment Property, plant and equipment include tangible assets excluding real estate, classified as investments, with an expected economic useful life of more than one year, complete, fit for use and intended for PZU's needs. These include, in particular: machinery, equipment, means of transport, IT equipment and others; improvements to third-party fixed assets. Property, plant and equipment components are measured at purchase price or production cost less accumulated depreciation and permanent impairment losses. Property, plant and equipment are amortized as of the first day of the month following the month in which the asset was put into use using the straight-line method over their expected useful lives, which corresponds to their estimated economic useful lives, in accordance with the amortization schedule adopted. Annual amortization rates for the key components of the category are presented below: In justified cases, PZU may set amortization rates individually in accordance with the applicable amortization schedule. Asset category Amortization rate for the key components of the category Machinery and technical equipment 10% - 40% Means of transport 14% - 33% IT hardware 14.30% - 40% Other non-current assets 7% - 20% For improvements to third-party fixed assets, rates determined on a case-by-case basis are used, taking into account the lease term. Property, plant and equipment with a unit value not exceeding PLN 3,500 are recognized as costs in the month they are put into use. Cash Cash mainly includes cash in hand and in current bank accounts, in addition to bills of exchange, foreign checks, and cash in transit. Cash is recognized at nominal value. Accrued expenses and deferred income Prepayments and accruals include incurred and accrued costs relating in whole or in part to periods after the balance sheet date and include, in particular, costs related to insurance premiums that will be earned in later periods (i.e., among other things, acquisition costs, reinsurance commissions, costs of mandatory fees, to the extent that they may have a material impact on the financial statements). For non-life insurance, deferrals apply to acquisition commissions and a portion of indirect acquisition expenses related to the signing and renewals of insurance policies, in particular costs related directly to sales processes, which cannot be classified as direct acquisition expenses, in particular costs of activities related to: agreement origination processes and underwriting processes in sales units (separated by using working time questionnaires), automatic and manual entry of policies into production systems (registration of sales) and contact center operations related to the sales of policies. Deferred tax assets Deferred tax assets are recognized after offsetting against deferred tax liabilities. Prepayments Costs incurred in advance (including, but not limited to: IT costs, mandatory fees as required by applicable laws, etc.) are accounted for according to the passage of time or the volume of benefits, insofar as they may have a significant impact on the financial statements. Accruals include, among other things, accrued reinsurance income arising from business events occurring up to the balance sheet date and which will be settled in the future in accordance with contractual terms, in particular, the reinsurer's accrued share of claims, and accrued reinsurance commissions in the case of outward reinsurance, and the ceding company's accrued share of premium in the case of active reinsurance. Accruals Accruals include costs and capital expenditures pertaining to the current reporting period incurred in a subsequent period that are not recognized as liabilities or provisions, including, in particular, acquisition costs, mandatory fees and outward reinsurance. Reinsurance accruals include accrued expenses resulting from business events occurring up to the balance sheet date and which will be settled in the future in accordance with contractual terms, including the reinsurer's accrued share of premiums and the cedents' accrued share of losses, and accrued reinsurance commissions and profit sharing due to cedents. Deferred income Deferred income includes deferred reinsurance commissions accounted for commensurate with the premium earned on reinsurers' participation. Equity Share capital The share capital is recognized in the books at its nominal value and registered with the National Court Register. Supplementary capital The supplementary capital is created and is subject to distribution in accordance with the provisions of the Commercial Company Code and the PZU Articles of Association. The supplementary capital is created from the distribution of net profit of previous years and the transferred portion of the revaluation reserve upon settlement of the disposal or liquidation of previously revalued fixed assets, as well as surplus of the issue price over the nominal value of the shares (agio). Revaluation reserve The following effects are recognized under the item: revaluations of shares in subordinate entities (only above purchase price); the effects of revaluation of investments classified in the available-for-sale portfolio (above and below the purchase price sand, in the case of debt financial instruments, the adjusted purchase price) after taking into account the corresponding change in deferred tax assets or liabilities; the effects of revaluation of fixed assets performed in accordance with the relevant regulations. The last such revaluation of fixed assets was carried out on 1 January 1995. Retained earnings (losses) This item includes the net profit (net loss) of previous years, including the net financial result resulting from changes in accounting principles, which was not distributed (covered) by the Shareholder Meeting. Technical provisions The technical provisions are created to cover current and future claims and costs that may arise from insurance contracts and inward reinsurance treaties. The provisions are made subject to the principle of prudence. If the information available does not allow to determine the value of technical provisions from inward reinsurance according to the methods referred to below, technical provisions are established in the amount documented by the cedents. Provision for unearned premiums The provision for unearned premiums is intended to cover costs which may arise after the end of the reporting period and which arise from insurance contracts concluded before the end of the reporting period. The provision for unearned premiums is created as written premium falling in subsequent reporting periods, in proportion to the period for which the premium was written. Provision for unearned premiums is calculated at the end of each reporting period on a case-by-case basis, with the precision of one day. For groups of insurance for which an uneven distribution of risk over time has been found, provision for unearned premiums is created in an amount depending on the distribution of this risk over time-based on statistical distributions. The reinsurers' share of the provision for unearned premiums shall be determined in accordance with the terms and conditions of the relevant reinsurance treaties, in proportion to the reinsurance cover attributable to periods after the end of the reporting period concerned. Provisions for unexpired risk The provision for unexpired risk is recognized as an addition to the provision for unearned premiums to cover future claims, benefits and expenses in relation to insurance agreements that do not expire on the last day of the reporting period. The provision for unexpired risk is calculated for insurance groups at the end of each reporting period. The total amount of the provision for unexpired risk is determined for those insurance groups where the current year loss and cost ratio is greater than 100%, as a difference between the product of the provision for unearned premiums and the loss and cost ratio of the current financial year and the provision for unearned premiums for the same insurance period. Reinsurers' share in the provision for unexpired risk is determined at the amount stated in the terms and conditions of the relevant reinsurance treaties. Provision for outstanding claims and benefits Provision for outstanding claims and benefits includes: provision for outstanding claims and benefits for losses and accidents incurred and reported (RBNP) by the end of the reporting period (which includes a portion of the provision for capitalized value of annuities); provision for losses and accidents incurred by the end of the reporting period and not reported (which includes a portion of the provision for capitalized value of annuities); provision for claims handling expenses. All of the above provisions except for the portion relating to the provision for capitalized value of annuities are recognized at nominal value, i.e. without discounting. The provision for the capitalized value of annuities is subject to discounting. Provision for claims reported but not paid The provision for claims reported but not paid ("RBNP", Reported But Not Paid, or "1st provision") is calculated on a case-by-case basis by claims handling units or, if available information is not sufficient to assess the provision amount, at the average claim amount determined using the actuarial method. The provision recognized takes into account the insured's deductible, the expected increase in prices of goods and repair services and may not be greater than the sum insured. The provision is updated as soon as information influencing its amount is available, on a case-by-case assessment or estimation of losses and claims. Provision for losses and accidents incurred but not reported The provision for losses and accidents incurred but not reported ("IBNR", Incurred But Not Reported, or "2nd provision") is created for losses and claims that are not reported by the balance sheet date, as at which the provision is recognized. During the year, the IBNR provision for claims arising in the reporting year is established as a write-down of earned premiums, while for claims from earlier years the existing provisions is reduced by newly reported claims. The provision is created in a prudent manner. The amount of the provision is periodically verified based on the triangle analysis results, of both claims paid and claims reported, or based on the stochastic analysis. If the provision exceeds the assumed security level, its excess is released. In the calculation of provisions, the uncertainty related to bodily injury claims is taken into account. For such claims, changes in the legal environment and uncertain jurisprudence may affect the ultimate amount of benefits paid. Provision for claims handling expenses The provision for claims handling expenses is determined at the end of each reporting period as the sum of the provision for direct and indirect claims handling expenses. The provision for direct liquidation costs for reported losses is determined individually for each loss, while for losses occurring and not reported, losses arising in the reporting year, it is established as an allowance from the IBNR provision, while for losses from earlier years the provision is reduced by newly reported loss. The value is verified similarly as in the case of the provision for losses and accidents incurred but not yet reported, based on triangle analyses of costs paid and costs reported. The provision for indirect claims handling expenses is calculated using the actuarial method, as a product of the ratio of the percentage of indirect claims handling expenses in claims paid and direct claims handling expenses and the sum of provision for claims reported but not paid and the provision for losses and accidents incurred but not reported and the provision for direct claims handling expenses. Provision for the capitalized value of annuities The provision for the capitalized value of annuities is calculated on a case-by-case basis as the present value of an annuity (lifetime or temporary) paid in advance. For lifetime annuities, the period in which the annuity will be payable is determined using life expectancy tables published by the Central Statistical Office. Additionally, the provision for the capitalized value of annuities is calculated taking into account the cost of future handling services at 3% of the value of benefits paid. When calculating the provision for the capitalized value of annuities, the future increase in average annuity is estimated based on historical data and taking into account other information that may contribute to an increase in annuities in the future (for example, growing insurance awareness, legislative changes, etc.). Both on 31 December 2025 and 31 December 2024, a revision rate of 3.9% and a technical rate of 3.6% were assumed for all annuities. Reinsurers' share in technical provisions Reinsurers' share in the provisions for outstanding claims and benefits is determined at the amount stated in the terms and conditions of the relevant reinsurance treaties. (Risk) equalization provision The (risk) equalization provision is created in an amount to ensure compensation for future fluctuations in the net claims ratio, in accordance with the Regulation on accounting of insurers. In certain statutory insurance groups, for example in Group 10 - Motor Third Party Liability - the level of the provision has not changed since 1 January 2003, i.e. since the entry into force of the currently applicable regulation mentioned above, due to the lack of significant fluctuations in loss ratios in these groups. As a result, the equalisation provision for these groups remains at the level as at 31 December 2002. Provision for bonuses and discounts (profit-sharing provision) The provision is created for insurance contracts that provide for the augmentation of future benefits, including the payment of the insured's share of profits. The amount of the provision at the end of a given period is determined on the basis of the currently anticipated final amount of the benefit increase (or premium decrease), directly proportional to the premium earned at the end of the period. Estimated salvage and subrogation In determining the value of future claims and benefits payments, PZU estimates, using actuarial methods, the value of anticipated future reimbursements as a result of the assumption of claims against third parties (salvage), property rights to insured property (subrogation) and subsidies to cover a portion of the claims due to agricultural producers from damage caused by drought, due to the Company in accordance with the provisions of the Act on Insurance of Agricultural Crops and Livestock. In estimating the volume of salvage, subrogation and subsidies, the costs of recovering salvage and subrogation and the costs associated with obtaining subsidies are taken into account. The basis for determining future salvage and subrogation is the annual triangles of salvage and subrogation received. The value of future salvage and subrogation is calculated using the generalized Chain Ladder method, broken down by the years in which the damages occurred. When estimating the value of future reimbursements as a result of the assumption of claims against third parties and property rights to insured property, the share of the sum of received and estimated salvage and subrogation in the cost of claims and benefits of a given loss year may not exceed the arithmetic average of the share of received salvage and subrogation in the cost of claims and benefits of the three consecutive loss years immediately preceding the year for which the determination is made. Reinsurers' share in technical provisions Reinsurers' share in the provisions is determined at the amount stated in the terms and conditions of the relevant reinsurance contracts. Other provisions "Other provisions" item includes provisions for certain or highly probable future costs arising from past events, the amount or timing of which is uncertain, but the amount of which can be reliably estimated. In particular, provisions are made for retirement severance pays, unused annual leave, bonus remuneration for employees, losses from business transactions in progress, guarantees and sureties given, losses from pending proceedings and third-party claims. "Other provisions" item also includes deferred tax liability, after offsetting against deferred tax assets. The cost of establishing provisions is included in net other technical costs, other operating expenses or administrative expenses, as appropriate, depending on the type of future liability. Provisions for retirement and disability severance pay, and other compulsory employee benefits Under the provisions of the Labor Code, PZU employees are entitled to receive a retirement severance payment or a disability severance payment of one month's salary upon retirement or disability retirement, respectively. The cost of retirement and disability severance pays estimated by actuarial methods is recognized on an accrual basis using the projected unit credit valuation method. Actuarial gains and losses are recognized in full in the period in which they occur. Provision for unused annual leave The value of the provision for unused annual leave is determined using the liability method based on the difference between the actual amount of vacation time used by employees and the amount that would have been used if the annual leave time had been taken pro rata to the elapse of time in the period when the employees are entitled to their annual leave time in accordance with applicable regulations. Provision for post-mortem benefits Under the provisions of the Labor Code, if an employee dies during the employment relationship or while receiving sickness incapacity benefit, the family is entitled to a death gratuity from the employer, the amount of which depends on the employee's period of employment with the employer and is equivalent to one to six months' salary. The provision for post-mortem benefits is measured at the present value of the discounted cash flows. Provision for bonuses The value of provisions for bonuses for eligible persons is determined on the basis of applicable remuneration principles. In determining the amount of the bonus, the Company takes into account all the components that affect the amount of the bonus and the rules for their settlement. Provisions for bonuses are released up to the amount of payouts. In special cases, the amount of the provision attributable to unpaid bonuses is maintained for the period during which the entitled person has the right to assert their claims, in accordance with separate regulations. Liabilities and special-purpose funds Liabilities for reinsurers' deposits Liabilities for reinsurers' deposits are recognized in the accounts at the amount required to be paid, in accordance with the reinsurance treaties entered into. Liabilities on the issue of own debt securities and drawn loans Liabilities on the issue of own debt securities and drawn loans are recognized at adjusted purchase price. Other liabilities Liabilities are reported at the amount payable. Special-purpose funds The "Special-purpose funds" item shows: the balance of the Company Social Benefit Fund (ZFŚS), created from the deductions charged to expenses, in accordance with the law. The Company Social Benefits Fund is also increased from, among other things, allowances to net profit pursuant to resolutions of the Shareholder Meeting; the balance of the Prevention Fund, created from allowances recognized against costs in accordance with the principles set out in the Insurance Activity Act and the PZU Articles of Association. The special-purpose fund balance is increased by any income from the investment of these funds. Revenue from the sale of insurance services Revenue from gross written premiums is recognized as amounts due for the entire period on the date the insurance contract is concluded, irrespective of when the insurance cover starts. Premiums earned during the reporting period correspond to gross premiums written adjusted for the movement in the provision for premiums and for unexpired risks. The reinsurers' share in the premium has been set for those groups of insurance for which reinsurance cover exists, to the extent that the premium is ceded in accordance with the relevant reinsurance treaties. Premium allocation from active reinsurance contracts is recognized in a manner analogous to direct insurance contracts, taking into account the provisions contained in reinsurance contracts. In the case of active proportional compulsory reinsurance contracts, premium income is recognized on the basis of statistics provided by the cedent, in the month to which they relate. Investment activities income and expenses Real property income and maintenance expenses Investment income on real property, such as rents received, rents from leases and other income related to the management of real property, is recognized under the "Investment income on real property" item in the general profit and loss account. Real property maintenance expenses when the real property is held for investment purposes are recognized under "Real property maintenance expenses" in the general profit and loss account. Real property maintenance expenses when the real property is used for own purposes are recognized in the revenue account of non-life insurance under "Administrative expenses" item. Income and expenses on debt securities and other fixed income securities The result from the valuation of debt securities to the adjusted purchase price is included in income on debt securities and other fixed income securities. The difference between the fair value at the balance sheet date and the value at adjusted purchase price is recognized: for debt securities (not included in the calculation of the provision for capitalized value of annuities and bonuses and discounts) included in available-for-sale investments, under "Revaluation reserve" item; for debt securities included in investments held for trading, under "Unrealized investment gains" or "Unrealized investment losses" item. Realized gains/losses on the sale/redemption of debt securities are recognized under the "Gain/loss on realization of investments" item. Gains and losses on shares, participation units, and investment certificates of mutual funds Unrealized gains and losses on the valuation measurement of shares, participation titles and investment certificates of mutual funds classified in the held-for-trading investment portfolio are recognized in the amount of the difference between the fair value and the purchase price or the carrying amount at the end of the previous financial year (if these securities were purchased in previous years) under "Unrealized investment gains/losses." Unrealized gains and losses on the valuation of shares, participation titles and investment certificates of mutual funds classified in the available-for-sale investment portfolio, which are not taken into account in the determination of the technical provisions, are recognized in the revaluation reserve. Realized gains and losses on the sale of shares, participation titles and investment certificates of mutual funds are recorded under "Gain/loss on realization of investments." Dividend income is recognized at the gross value on the date the right to dividend arose under "Income from investments in subsidiaries from shares" or "Income from other financial investments from shares, stocks, other variable income securities, and participation titles and investment certificates in investment funds." Interest income on term deposits with credit institutions Interest income on deposits with credit institutions is recognized on an accrual basis, whereby all interest relating to the reporting period is reported, irrespective of when it is received. If the deposit expires after the balance sheet date, interest is calculated at the effective interest rate from the day after the deposit opening date to the balance sheet date inclusive. Net investment income (including costs) transferred from the general profit and loss account Investment income taken into account in the calculation of the provision for capitalized value of annuities and the provision for bonuses and discounts is transferred from the general profit and loss account to the revenue account of non-life insurance. In the process of investing (placing) funds, PZU separates a portfolio of financial instruments aimed at covering provisions for the capitalized value of annuities. Secure debt instruments issued, guaranteed or underwritten by the State Treasury or the National Bank of Poland or international organizations of which the Republic of Poland is a member are eligible for the portfolio. The value of investment activity income to be transferred from the general profit and loss account to the technical non-life insurance account is determined as the product of the balance of the capitalized annuity provision at the beginning of the month and the yield obtained in that month on the instruments included in this dedicated investment portfolio, taking into account the corresponding investment expenses. Investment activity expenses The investment activity expenses are internal and external expenses arising from the investment activity, including investment management costs, negative result from realizing and reevaluating deposits, bank commissions, brokerage commissions and amortization and maintenance costs of real property, excluding amortization and maintenance costs of real property used for own purposes, classified as administrative costs. Result from revaluation of deposits Permanent impairment losses on investments created during the reporting period are recognized under "Loss on revaluation of investments" item and income from the reversal of impairment losses created in previous periods is recognized under "Gain on revaluation of investments". Costs of claims and benefits The costs of the reporting period include all costs of claims and benefits paid for damages and accidents arising in the reporting period and in previous periods, together with direct and indirect costs of handling claims and benefits and the change in provisions for outstanding claims and benefits, net of any salvage and subrogation and subsidies received, as well as the change in estimated salvage and subrogation and subsidies. Reinsurers' share in claims and benefits was determined for those insurance groups, for which there is reinsurance coverage, to the extent to which reinsurers participate in the claims and benefits according to the terms and conditions of the pertinent reinsurance treaties in effect in a given period. Total claims and benefits handling expenses include the direct and indirect expenses associated with the performance of activities that aim to process and close claims or support activities that aim to process and close claims. Insurance activity expenses The insurance activity expenses are recognized on an accrual basis commensurate with the revenue generated. Acquisition expenses Acquisition expenses include expenses related to the conclusion and extension of insurance agreements and inward reinsurance treaties. Direct acquisition expenses include, among others, cost of commission for insurance intermediaries, employee remuneration costs associated with the conclusion of insurance agreements, cost of attestations, expert opinions and studies related to the accepted risk, the costs of including the reinsurance treaty in the reinsurance portfolio and cedants' commissions

View stock analysis, news, and events for Powszechny Zaklad Ubezpieczen Spolka Akcyjna