56.7 Situation in Ukraine

Both in 2014 and 2015, Ukraine’s political and economic situation was unstable. It was associated with the following factors affecting the Ukrainian insurance sector:

  • high inflation (48.7% year-to-year) and strong dynamics of local currency depreciation (Ukrainian hryvnia) in relation to the dollar and the euro;
  • collapse in domestic demand;
  • issues in the banking sector;
  • military activities in the east of Ukraine (in Donetsk and Luhansk circuits).

In 2015, the Ukrainian economy withered. In the third quarter of 2015, according to the data of the Central Statistical Office of Ukraine, the decline in GDP amounted to 7.2% year-to-year.

Due to the uncertain political and economic situation in the country, the management boards of PZU Ukraine and PZU Ukraine Life Insurance undertook to reduce the risk:

  • in the scope of insurance activity, apart from standard exceptions such as war, terrorism, etc., insurance coverage does not apply to third party operations performed in violation of the law. In addition, it has been decided to temporarily suspend conclusion and renewal of non-life insurance contracts with natural and legal persons, including property that is subject to a lien or mortgage, if the contract is executed in the territory of Donetsk and Luhansk regions. The same applies to forwarding agent and carrier liability insurance, as well as cargo insurance, if the freight lane passes through the territory of the above mentioned regions;
  • cash in current accounts and bank deposits were transferred to selected banks operating in Ukraine, which have credible foreign majority shareholders and an appropriate rating.

External influences disturb the functioning of the financial sector and hinder long-term business planning. For customers, reliability of insurance companies has become highly important. Insurance companies with foreign capital are perceived more reliable. This tendency has a positive effect on the sales of the Ukrainian companies of PZU Group. By diversifying their portfolios and sales channels, PZU Ukraine and PZU Ukraine Life became more flexible to market changes and implemented their financial plans for 2015.

The Management Board of PZU, in cooperation with the management boards of PZU Ukraine and PZU Ukraine Life Insurance, carries out constant monitoring of external risks and changes in the Ukrainian regulations. PZU developed scenarios and control mechanisms to respond to market changes in Ukraine. The company does not intend to withdraw its operations from the Ukrainian market. As at the date of these consolidated financial statements, the Management Board of PZU assumes that PZU Ukraine and PZU Ukraine Life Insurance will continue their business activity in accordance with the approved objectives. Nevertheless, the unstable business environment in Ukraine could negatively affect in the future results of PZU Ukraine and PZU Ukraine Life Insurance and financial position in a manner not currently determinable. These consolidated financial statements reflects the current assessment of the Management Board of PZU in this respect.