Report on Business Activities

Non-life Insurance

Non-life premiums written came to CZK 19.7 billion, down by CZK 0.6 billion on the previous year. The most important factor contributing to the decline in premiums written is the motor insurance situation. In response, Česká pojišťovna is optimising its portfolio, reflected particularly in fleet and leasing insurance. Premiums written shrank in the motor insurance segment by CZK 480 million (-5.7%) year on year, accompanied by a drop in the number of insurance contracts by 30,000 (-1.4%). In other non-life insurance segments, there was also modest shrinkage, with premiums written down by CZK 150 million (-1.2%).

Česká pojišťovna remains the leading non-life insurer with a market share of 25.8% in terms of total premiums written.

The loss-ratio trend was highly favourable in 2014, with no major disasters during the year. The only negative aspect here was the rise in more extensive claims under business insurance. Indemnification costs were CZK 1.75 billion lower than in 2013. Non-disaster costs climbed by CZK 560 million, especially in the business insurance sector, where costs increased by CZK 830 million.

Insurance of Business Risks

Premiums written under business-risk insurance fell by CZK 87 million (-1.6%) compared to 2013, the brunt of which was felt in property insurance of small and medium-sized risks and in the agricultural insurance of crops.

Although claims costs contracted by a fifth year on year, non-disaster claims rose on the back of numerous large-scale loss events. As 2013 gave way to 2014, the negotiation of all non-life insurance products consistent with the new Civil Code was successfully launched. Here, besides marketing revised insurance products, Česká pojišťovna also revamped all of its sales and marketing materials in order to provide a better idea of the changes that had been made. The new look insurance products were not only innovatively repackaged, but also came with the guarantee that the Company would provide prompt, flexible and – most importantly – high-quality guidance on insurance issues covered by the new Civil Code.

During the year, the Company also moved ahead with processes safeguarding decent profitability in all customer segments of business insurance.

In agricultural insurance, we harnessed modern technology to develop a new mobile app dealing with crop claims with a view to making settlement more precise, faster and more transparent. The application guides a loss adjuster through the entire electronic settlement process. The application boasts a plethora of add-on functions, including direct positioning and verification of the insurance site using GPS, as well as measurements of the crops damaged.

Non-life Personal Lines

Premiums written in personal property insurance dropped slightly, down by 0.8% compared 2013. There was positive progress in liability insurance, with premiums written rising by 3.5%.

Personal lines were typified in 2014 by the absence of large-scale or broad-based loss events. The only event out of the ordinary was the abnormally strong spring earthquake in the Sokolov and Cheb areas, prompting more than 500 small claims (totalling approximately CZK 8 million).

Starting in September 2014, Česká pojišťovna (along with other insurers under the Czech Insurance Association) started using the recently updated flood maps as a helpmate when underwriting flood-related insurance risks. The new model incorporates more direct points and is also more precise.

In 2014, Česká pojišťovna waged a seasonal marketing campaign across all distribution channels for its travel insurance beyond the scope of its established product offering. This was accompanied by a 30% discount in the summer. The result was keener interest, especially among online clients, who took out insurance directly via the website.

Motor Insurance

The new Civil Code overshadowed events in 2014. In vehicle insurance, the switch to the new legislation was seamless and hardly noticed by clients. Halfway through the year, we started marketing a new benefit under MTPL insurance comprising expanded AutoCare assistance, giving clients the opportunity to activate a superior roadside assistance scheme. This assistance ideally complements ordinary insurance, especially on trips abroad. This move bolstered our customer-care arsenal.

Motor Third Party Liability Insurance

In 2014, total MTPL premiums written fell by CZK 120 million (i.e. by 2.5% compared to 2013). This is another insurance segment in which Česká pojišťovna remains the largest insurer, with a share of 23.5%. The drop in premiums written can be attributed in particular to the loss in leasing insurance. Retail insurance premiums written went up by 2.9%. From our point of view, this is a major achievement in the steady stabilisation of insurance. With indemnification costs on an even keel, the profitability of this insurance was maintained at an acceptable level given how intensely competitive this area is.

Motor Damage Insurance

As the markets for motor damage and MTPL insurance are closely related, they evolve along similar lines. Premiums written decreased by CZK 360 million (9.8%) year on year, reflecting Česká pojišťovna’s efforts to optimise earnings by withdrawing from contracts with customers who report a high long-term loss ratio, along with a CZK 330 million loss in leasing insurance. As with MTPL insurance, here too positive personal lines could be discerned, registering growth of 3.3%.

The costs of loss events were more than CZK 400 million lower than in 2013, thus repairing the profitability of this erstwhile problematic insurance.

Innovation and Future Developments

The Company will continue to expand its special product lines in the coming years. For 2015, our plans include the launch of new D&O liability insurance and new CAR/EAR insurance, focusing primarily on corporate clients. We will remain flexible as we innovate all products in response to the requirements of the market and customers while bearing in mind developments in case-law and legislative changes and taking account of the application of the new Civil Code.

In its personal lines, Česká pojišťovna will continue to focus on updating the portfolio of older insurance contracts which may be of a nature that does not provide customers with the optimal scope of insurance coverage available. We will continue to revamp products in property and liability insurance in particular so that we are in a position to cover increasingly demanding customer requirements, harness new opportunities offered by the new Civil Code, take account of the client experience in claims settlements and deal with the ever more competitive situation on the Czech market. In 2014, we will also make further headway in introducing updated flood maps, which should become the new market standard and offer greater precision when assessing flood risks.

As the vehicle insurance market is keenly competitive, it is important to keep enhancing the quality of the products and services on offer, thereby guaranteeing customers’ satisfaction not only in insurance contracting, but also over the duration of their policy and if they need to settle any claims. In 2015, we will focus on improving convenience, especially in the face of unexpected events which could affect any driver on the road, with a particular focus on the speed and simplicity of contracting. Nor have we forgotten corporate clients, for whom we are preparing simple, transparent and appealing insurance consistent with their specific needs.

Česká pojišťovna’s Polish Branch

In 2014, Česká pojišťovna’s Polish branch sold more than a million policies. Gross premiums written amounted to CZK 2.9 billion in 2014. The sales result was 45% up on 2013. Sales of new business remained at a steady level throughout the year, with around 46,000 new policies reported per month.

Gross premiums written were mainly driven by motor insurance. Non-motor business primarily comprises riders sold together with motor policies. In 2014, new products were unveiled – SME insurance and stand-alone personal accident insurance. In November 2014, the branch launched sales via a franchise sales channel, along with the online availability of contents insurance. As at 31 December 2014, 75% of sales were via untied agents operating in more than 600 multi-agencies.

In 2014, with sales reported at forecast levels, the loss ratio also remained at satisfactory levels in the region of the predicted figures. The number of claims reported in the period from January 2012 to December 2014 rose in tandem with the portfolio’s dynamic growth. However, the quality of the portfolio cultivated since the company started out is relatively high compared to the market, as can be seen in the claims frequency statistics.

Apart from continuing growth in sales, the branch’s focus in 2015 will be on steadily increasing its market share, pushing up sales of voluntary insurance, and reaching the stage where it is a profitable business.

Life Insurance

Life Insurance Product Portfolio in 2014

On 1 July 2014, Česká pojišťovna a.s. introduced the new Můj život to its regular-premium life insurance product range. This new life insurance was primed to make it as easy as possible for clients to grasp life insurance as a useful financial instrument while providing them with a wide range of possibilities and forms of individual insurance responsive in all cases to their current needs and unique situation in life. With this in mind, Můj život delivers personalised solutions for short-term (illness or accident) and long-term serious impacts (disability), for the accumulation of a retirement pot, or in case of death. The new product even covers personal accidents sustained by children and extensive assistance services for all.

Special attention was paid to serious illness in the structuring of Můj život. A “two-speed diagnosis” system is available for cancer, heart attacks or strokes, according to which clients are free to choose at what stage of selected serious illnesses they want to be indemnified, i.e. whether they want to receive a payout at an early stage, or whether they will seek resources when the illness becomes more severe. Under its disability insurance, Česká pojišťovna does not review the client’s state of health, but automatically accepts the degree of disability – of which there are three – set by the state.

Under accident-related permanent disability insurance, progressive indemnification was increased by as much as a multiple of six. This product also includes the possibility of covering permanent disability arising from an accident in a motor vehicle.

In the final quarter, Česká pojišťovna a.s. prepared the 13th tranche of its single-premium VÝNOS Plus insurance for customers, offering an attractive return on underlying assets issued by UniCredit Bank Czech Republic and Slovakia, a.s., redeemable in 2021.

Financial Indicators

Despite a 7% year-on-year decrease, total premiums written under new regular-premium life insurance contracts still amounted to CZK 9.5 billion. Single-premium products generated CZK 1.3 billion in premiums written. On aggregate, our regular-premium life insurance products were purchased by over 139,000 customers in 2014.

Claims Paid

In 2014, life insurance claims paid rose by 22% from the previous year’s figure to a total of CZK 14.3 billion as a large number of Dynamic and Guarantee policies matured. The total number of claims settled was 523,000.

As in previous years, the greatest number of paid claims was registered in the “insurance on death or survival” class. In terms of monetary volume, most funds (CZK 7.5 billion) were released in the form of endowments.

Outlook

The abolition of the second pillar of the Government’s pension reform, amendments to tax legislation affecting private life insurance from 1 January 2015, increasing competition and low returns throughout the financial markets will continue to steer a new course aimed at honing offers to insure risks associated with loss of income and the need for extraordinary outgoings in case of personal accident or disease.

In 2015, the Company will also address the repercussions that implementing new solvency rules (effective from 1 January 2016) will have for life and personal accident insurance products.

Sales of Insurance

Internal Distribution Channels

In the second half of 2014, a new system of remuneration for the network of exclusive insurance agents was launched. This was accompanied by the introduction of a new career growth management system and the adoption of new career rules centring on three key parameters – overall performance, the period of cooperation, and distribution quality. All of this was subsequently incorporated into revised sales representation contracts reflecting established and anticipated legislative amendments. Česká pojišťovna has made these changes with a view to the further stabilisation of its internal distribution, with a particular emphasis on the quality of service provided to customers.

The internal distribution network’s capacity for action was tested at the end of the year, when we had to respond rapidly and on an unusually large scale to changes in the conditions relating to tax advantages under private life insurance.

In the latter half of 2014, we implemented a project – expected to last five years or so – intended to forge genuinely close ties with customers. This project includes a major reduction in office premises for network management and a greater presence near to our clients.

The “Redesign” project to refurbish branches, with a stress on the efficiency of investment, continues to make progress.

Specific Distribution Channels

External Retail Partners – Focused on Personal Lines

The launch of Můj život sales handed the distribution network a product which, according to feedback, met the expectations of business partners, especially from the aspects of comprehensibility, transparency and flexibility.

The introduction of this new product was coupled with the innovation of the Wepos modelling instrument to make it more transparent and simpler for the sales network, enabling agents to process and complete modelling as quickly as possible.

Last year, we also enjoyed success in sales of property insurance and motor insurance, which attracted much more interest due to the broad-based scope of insurance and the high coverage limits.

In 2015, we will be joining forces with external partners to innovate the Můj život product.

Česká pošta (Czech Post)

In the past 13 years, Česká pošta s.p. has steadily emerged as a major Česká pojišťovna partner offering a range of insurance services. Starting in 2001, the portfolio of life and non-life insurance products and services available has been expanded every year and has now reached the stage where it covers the entire range of retail insurance lines. The business model draws on the entire post-office network, with ever increasing coverage via points of sale specialising in insurance services. The group of exclusive insurance agents, providing direct support to Česká pošta employees and engaging in activities to generate new business based on their post-office network contacts, is an integral part of the model.

In 2014, we pressed further ahead with a project to turn some of Česká pošta’s employees into specialists in Česká pojišťovna’s range of comprehensive products using the insurer’s electronic resources. Besides 80 counters specialising exclusively in insurance services, staffed by 229 fully qualified post-office employees, the project also saw a further 601 Česká pošta employees at 381 counters offering insurance products to customers directly in Česká pojišťovna’s mainframe systems at the end of last year.

The insurance portfolio managed by the Česká pošta distribution channel grew by CZK 12 million to a total of CZK 645 million last year, with the vast majority (80%) comprising regular-premium life insurance policies. Sales of regular-premium life insurance contracted in 2014 came to CZK 88 million; total sales of non-life insurance stood at CZK 67 million last year.

In the coming year, the trend of an expanding proportion of non-life insurance (especially motor insurance) in overall sales generated by the Česká pošta distribution channel is set to continue. Training to consolidate the specialisation of selected groups of Česká pošta employees in the full range of insurance products, with direct application support from Česká pojišťovna, will be a central feature of further advancements in this partnership.