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

Česká pojištovna – the Czech Insurance Market’s Long-established Leader and a Major Innovator

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 five coverage. More than 185 years later, Česká pojištovna 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 risks in industry, business and agriculture. Česká pojišťovna is therefore deservedly hailed as the Czech insurance market’s long-standing leader.

This status is also acknowledged by A.M. Best, the international agency specialising in the insurance sector, which gave Česká pojišťovna a financial strength rating of “A” and a credit rating of “a” – both of which came with a stable outlook – in 2016. These ratings reflect the long-term reporting of high revenues, accompanied by the Company’s robust risk-weighted capital position, and are excellent news for customers and business partners. Česká pojišťovna’s stability guarantees its ability to honour its commitments, even in the face of the large-scale natural disasters that have been descending on the Czech Republic increasingly frequently in recent years.

The insurance market is in a constant state of flux, with lifestyles evolving and changing over time. Česká pojišťovna responds to changing needs by means of numerous product innovations. In this context, car insurance has been innovated in the past year with the marketing of personalised number plate insurance, while new children’s life insurance has been unveiled as part of the expansion of the Můj život product. A major innovation in property insurance has been the new Můj majetek, offering comprehensive services including assistance, contents insurance and building insurance. Česká pojišťovna has also introduced new features in its travel insurance and block of flats insurance, and has launched the Customer Club, rewarding loyal customers with appealing bonuses and premium services.

Česká pojišťovna’s solid position is also borne out by a string of awards. In the Best Insurance Company of the Year poll, Česká pojišťovna came top in one of the two main categories when it was named Best Insurance Company 2016. It also chalked up success in the 15th annual Fincentrum Bank of the Year competition and in the Sodexo Employer of the Year contest, where it was singled out as the best employer of up to 5,000 employees in Prague.

Helping in 1827, Helping Now

Česká pojišťovna has been a friend in need ever since its formation, when it supported the orphans of firefighters who had tragically died in action. Česká pojišťovna continues to support many charities and community activities via its foundation.

The foundation’s pursuits, closely linked to the operations of Česká pojišťovna, are structured around three core areas of assistance: prevention (encompassing road traffic and personal accidents); the support of regional projects to help the public and non-profit organisations; and corporate volunteering. All of Česká pojišťovna’s employees are entitled to devote two fully paid working days a year to volunteering. This means that Česká pojišťovna’s charity work is not blinkered. Instead, assistance is spread out among various areas and regions.

The Czech Insurance Market – Situation and Outlook

The Market in 2016

The overall view of the insurance market in the Czech Republic is encouraging. The Czech Insurance Association’s statistics show that total written premiums climbed by 2.1% to CZK 118.5 billion. While non-life insurance built on previous growth, life insurance was unable to extricate itself from its downward spiral.

The uptake in non-life insurance was driven in particular by positive developments on the motor insurance market, reflecting vehicle trends in the Czech Republic. MTPL was underpinned by the rising number of registered vehicles, while collision insurance benefited from the increase in new vehicle sales.

Non-life insurance rose by CZK 3.2 billion, or 4.5%, year-on-year, a result that was even better than the previous year’s increase. Collision insurance performed best, improving by 9.5% year on year. The growth in non-life insurance was also fuelled considerably by MTPL (+2.6%) and business insurance, which – boosted by the reassuring economic situation – expanded by 3.4% year on year.

In contrast, life insurance stalled and contracted for the third year in a row, this time by CZK 0.8 billion. Both components – regular- and single-premium life insurance – contributed to this downturn.

Regular premiums continued to shrink, though the 0.8% decline was not as bad as in the previous year. The 23.6% year-on-year plunge in single-premium life insurance mirrored the situation in 2015. The main reason for its tarnished appeal can be found in low interest rates.

Outlook for 2017

There is no reason to expect the positive trend in non-life insurance to be knocked off course in 2017. Another favourable stimulus could be a rise in the MTPL prices, as advised on several occasions by various insurers’ representatives in the light of growing claims costs. A certain risk for developments towards the end of the year could be the anticipated loosening of the Czech crown’s exchange rate. Despite the economy’s performance, this factor could have a particular impact on the business insurance market.

On the life insurance market, however, there is little reason for optimism. In regular-premium insurance, new business continues to fall (by 9% in 2016). This situation could be compounded by an amendment to the Insurance Intermediaries Act imposing five-year liability for commission as of December 2016. At this stage, it is difficult to say whether and how much this will affect intermediaries’ appetite to engage in insurance.