Board of Directors Report on the Company’s Business Activities and Financial Situation

Česká pojišťovna – Tradition and Innovation

Česká pojišťovna’s traditions date all the way back to 1827, when the articles of an institution called Císařsko-královský, privilegovaný, český, společný náhradu škody ohněm svedené pojišťující ústav (Imperial-Royal Privileged Bohemian Joint Fire Damage Insurance Institute) were approved. That outfit initially offered no more than fire coverage. More than 185 years later, Česká pojišťovna remains an innovative company in touch with its traditions. This stance makes it a composite insurer providing a comprehensive range of services, encompassing life and non-life personal lines, and insurance for small, mid-sized, and large customers covering industrial and business risks and agriculture. Česká pojišťovna has therefore deservedly long been regarded as the Czech insurance market leader.

2014: Modern Technologies and Products

Back in 2011, Česká pojišťovna became the first insurer on the Czech market to introduce a smartphone app, which it has been refining ever since to deliver useful new features for clients and the public. The latest version (7.0) of the application, Pojišťovna (“Insurance Company”), offers OCR (allowing letters and numbers to be read from photographed documents). The versatility and simplicity of Pojišťovna has been discovered by almost 120,000 customers, who use the application to take out not only MTPL insurance, but also travel and personal accident insurance. It is also their gateway to policy management in the customer zone and is used to file claims.

Another handy tool is the fun new online app on the Česká pojišťovna website called “Jak jsem pojištěn” (My Insurance), intended to raise public awareness and shed light on the opportunities of covering risks to which everyone of us may be exposed in our lives. Online insurance contracting and a website calculator are par for the course.

In mid-2014, Česká pojišťovna rolled out its new life insurance under the name Můj život, a step forward in life insurance responding to the latest trends in Czech society and health, offering a genuinely exceptional solution to insurance coverage and flexibility on the domestic market. Besides covering new insurance risks previously neglected by the market, this new-generation life insurance has introduced the option of configuring an automatic reduction in the sum insured and even of automatically removing coverage of certain risks over the duration of the policy. Another new development is the introduction of a system of “two-speed diagnosis”. A broad range of assistance services, able to offer consulting in the form of a second medical opinion and contributions to spa care, is made available as a matter of course. The quality of this product has been recognised not only by clients themselves, but also by industry experts, borne out by the fact that, despite its newness, Můj život won the Life Insurance category in the acclaimed Fincentrum Bank of the Year 2014 competition.

Helping in 1827, Helping Now

Česká pojišťovna, always a friend in need ever since it was formed, when it supported the orphans of firefighters who had tragically died in action, steadfastly engages in charity and community activities. Most recently, donorship has been the preserve of the Česká pojišťovna Foundation, which has long been a stalwart supporter of numerous charity and community activities.

The Česká pojišťovna Foundation’s activities are closely linked to the operations of Česká pojišťovna. The Česká pojišťovna Foundation adheres to a three-pillar strategy. The first pillar is prevention, especially in the field of road traffic accidents involving children. The second pillar of the Foundation’s activities comprises regional projects benefiting the public and helping non-profit organisations. The third pillar is corporate volunteering. All of Česká pojišťovna’s employees are entitled to devote two fully paid working days a year to volunteering. Unlike some other foundations, the Česká pojišťovna Foundation is not a one-track entity, choosing instead to help out in multiple fields and regions.

The Czech Insurance Market – Situation and Outlook

2014 in Review

In 2014, insurance companies had to cope with the repercussions of several formidable legislative changes affecting overall premiums written and the management thereof. These amendments necessitated a tightening of conditions for life insurance policy tax credits, prompted the introduction of contributions to a loss prevention fund, and saw the new Civil Code enter into effect.

The revised conditions for the tax concessions applicable to private life insurance placed the customers of insurance companies in a situation where policies which had previously been “tax-deductible” were set to become ineligible for such tax advantages. Insurers were thus faced with an unenviable task. In a race against time, they had to address more than three million clients and offer them solutions that would enable them to keep enjoying tax concessions. The results of the entire campaign showed that customers generally chose to accept the solution on offer and maintain their tax privileges attached to private life insurance.

Compulsory contributions to a loss prevention fund, tantamount to 3% of MTPL premiums earned, were introduced at the start of 2014. On the same day, the new Civil Code came into effect, pushing up indemnification for injuries and impacting all liability insurance, particularly motor third-party liability insurance. Together, these two new pieces of legislation pushed up insurers’ costs considerably, and they responded by revising MTPL rates upwards. However, because they hesitated to factor in all of their extra costs into those prices, the profitability of one of the pillars of the insurance market took another hit. The latest estimates released by the Czech Insurers’ Bureau indicate that the MTPL policies currently on sale are lossmakers for insurance companies.

Conversely, 2014 was a good year from the perspective of property loss in non-life insurance because we experienced nothing on the scale of the major flooding disasters in 2013. Furthermore, the winter was one of the mildest in years. These were factors that helped insurance companies to absorb the higher MTPL costs in their overall financial management. Nevertheless, there is no guarantee that the situation, taken as a whole, will remain just as favourable in the future.

Another upbeat trend on the insurance market was the volume of premiums written, which – thanks to motor insurance – reported growth after a slide of several years. This expansion in vehicle insurance was fuelled not only by the price hike responding to the higher costs stemming from new legislation, but also by a rise in the number of vehicles insured. In contrast, regular-premium life insurance experienced a slight downturn.

Market position rankings show that Česká pojišťovna remains the market’s largest insurer, with a share of 24%, followed by Kooperativa and Allianz.

Outlook for the Czech Economy and Insurance Market

The way the insurance market evolves could continue to be impacted by legislative changes in 2015. The tighter conditions for tax concessions applicable to private life insurance will remain a factor in decision-making. On 1 January 2015, contributions made by non-MTPL drivers to the Guarantee Fund maintained by the Czech Insurers’ Bureau were abolished. In past years, these contributions had accounted for as much as 70% of the Fund’s total revenues. The difference will now be covered by the resources of insurance companies.

In 2015, an amendment to the Act on Insurance Intermediaries and Loss Adjusters is also planned for enactment. Although regulatory requirements applicable to insurance intermediation are likely to entail additional costs on the part of insurance companies, they should also cut the expenses incurred by clients when they take out a policy.

In 2015, we also expect to see a continuation of the current trend of clients taking their grievances to the Financial Arbitrator’s Office rather than to the courts, as cases here are dealt with faster than in judicial proceedings and, moreover, are free of charge.

Legislation aside, 2015 looks bright for the further development of the insurance market. The improving Czech economy, estimated to grow by as much as 3%, offers opportunities to increase overall premiums further. Motor insurance will continue to feel the projected rise in the number of vehicles insured, accompanied by higher prices triggered by customer claims. More active investment by the Government could help to improve the situation in business insurance.