Supplemental Information on the Financial Situation and Information for Investors

Listed Security Issuer Information

Shareholder Structure

Since 2006, the Company’s sole shareholder has been CZI Holdings N.V. Česká pojišťovna’s ultimate controlling entity is Assicurazioni Generali S.p.A.

Controlling entities wield control based on the weight of their votes alone. Information on mutual relations with Group companies is presented in the notes to the financial statements and in the notes to the consolidated financial statements, as well as in the report on related-party transactions, which are included in this Annual Report. Česká pojišťovna is not dependent on any other entity in the Group.

Securities Issued by Česká pojišťovna

Shares

As at 31 December 2016, the approved share capital consisted of 40,000 dematerialised, registered ordinary shares totalling CZK 4,000 million.

Bonds

On 13 December 2012, as part of its bond programme, Česká pojišťovna issued 500,000,000 bonds with a total nominal value of CZK 500 million. The bonds bear interest at a fixed rate of 1.83% p.a.

The lead manager of the bond issue is Raiffeisenbank a.s.

Principal Business according to the Current Articles of Association and Types of Insurance Written

Česká pojišťovna is a composite insurer offering a wide range of life and non-life insurance classes.

2. Reinsurance activities, comprising all types of reinsurance activities under the Insurance Act.

3. Insurance- and reinsurance-related activities
• intermediary services related to insurance and reinsurance activities under the Insurance Act;
• consultancy services related to the insurance of natural and legal persons under the Insurance Act;
• investigations into insurance claims pursuant to an agreement with an insurer under the Insurance Act;
• the exercise of rights and fulfilment of obligations for and on behalf of the Czech Insurers’ Bureau pursuant to Act No 168/1999, as amended;
• the intermediation of financial services referred to in (a) to (j) below:
1. intermediation of the acceptance of deposits and other funds due from the public, including intermediation in building savings schemes and supplementary pension insurance;
2. intermediation of loans of all types, including, without limitation, consumer loans, mortgage loans, factoring and the financing of commercial transactions;
3. intermediation of finance leases;
4. intermediation of all payments and money transfers, including credit and debit cards, travellers’ cheques and bank drafts;
5. intermediation of guarantees and commitments;
6. intermediation of customer trading on individual customer accounts on the stock exchange or other markets, for cash or otherwise, concerning negotiable instruments and financial assets;
7. intermediation of the management of assets, such as cash or portfolio management, all forms of collective investment management, pension fund management, escrow accounts and custodianships;
8. intermediation of payment and clearing services relating to financial assets, including securities, derivatives and other negotiable instruments;
9. advisory-based intermediation and other ancillary financial services relating to all activities listed in (a) to (h), including references to loans and analysis thereof, research and consultancy in the field of investments and portfolios, consultancy in the field of acquisitions and restructuring, and corporate strategy;
10. intermediation of the provision and transmission of financial information, financial data processing, and relevant software from providers of other financial services.

4. training activities for insurance intermediaries and independent loss adjusters.

The Company also engages in all activities related to its ownership interests in other legal entities.

Shareholder Rights and Obligations

Holders of the Company’s ordinary shares are entitled to receive dividends approved in individual time periods, and are entitled to exercise one vote per share held at General Meetings.

Capital gains and other income from shares are taxed in accordance with Czech legislation, i.e. Act No 586/1992 on income tax, as amended. Profit-sharing is taxed at a special tax rate of 15%. Exceptions to this are possible under international double taxation treaties.

Articles of Association

Česká pojišťovna’s Articles of Association valid in 2016 were approved by the Company’s sole shareholder on 17 June 2014. In addition, and the Company was subjected to Act No 90/2012 on companies and cooperatives (the Business Corporations Act) as a whole.

Those Articles of Association were subsequently revised on 30 October 2014, 10 June 2015 and 15 December 2016.

Fees Paid to the Audit Firm in 2016

The audit firm’s fees for audit services provided to the ČP Group in 2016 totalled CZK 16.83 million.

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The audit firm provided no other services to Česká pojišťovna or Group companies.

Solvency of Česká pojišťovna

Insurance is a regulated industry and the Company must meet the requirements of Act No 277/2009 on insurance and (as of 2016) EU Regulation No 306/2016, including capital adequacy requirements. The Company calculates its solvency margin (i.e. the ratio between the Company’s own resources and the solvency capital requirement to cover quantifiable risks) using an approved Group internal model defined in accordance with the Solvency II Regulation.

Preliminary calculations showed that, as at 31 December 2016, the Company met the regulatory solvency margin requirements. The final solvency margin results will be available after the date of publication of this Annual Report and therefore will be not be released until the Solvency and Financial Condition Report (SFCR) is published at the end of May 2017.

Developments in solvency indicators according to the previous regulation:

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Remuneration Principles

Remuneration Principles – Members of the Board of Directors and Supervisory Board

In general, the compensation model applied to the Company’s governing bodies and executives reflects the long-term strategy of simplicity and transparency in the motivation and remuneration of all employees of Česká pojišťovna.

Other benefits of members of the Board of Directors are regulated either directly in the Board Membership Contract (e.g. compensation for non-use of Company cars) or by an internal Company regulation granting members of the Board of Directors generally the same scope of benefits as Company employees.

Members of the Supervisory Board are entitled to regular fixed monthly remuneration derived from their Board Membership Contract approved in advance by the sole shareholder (the General Meeting). The amount is paid monthly, by the 15th day of the calendar month following the month in which the board member’s claim arose.

If a member of one of the Company’s bodies holds office only for part of the calendar month (e.g. in cases where he ceases to be a member of a Company body), he is entitled to remuneration on a pro rata basis.

Members of governing bodies who are concurrently employees of the Company receive remuneration pursuant to principles stipulated universally for the entire Company in the form of Pay Rules and the Social Programme, which is an integral part of the Collective Agreement.

In total, members of the Board of Directors drew healthcare contributions in an aggregate amount of CZK 146,000; members of the Supervisory Board did not draw on these contributions.

Three members of the Board of Directors and no members of the Supervisory Board used an executive car.

Remuneration Principles for Other Employees

Base Pay
Employees’ base pay is governed by the Pay Rules and rules defined by the Collective Agreement. The specific base pay amount for executive positions is stipulated individually in each executive’s contract, or by a pay assessment, and is in line with standard practice in the Czech market.

Bonus and Other Variable Pay Components
Variable remuneration at ČP follows the guidelines on remuneration for individual departments. The rules in those guidelines are updated regularly. Employees who have not been set a variable component of remuneration may be granted a special bonus under the Collective Agreement.

All employees are set targets in financial, business/functional and development areas.

Where employees have a bonus component incorporated into their pay, rules for the granting of the bonus are approved by the Company management in the directive entitled “Pay Regulation for the Payment of Bonuses to ČP Employees”. The bonus base for employees depends on the importance of their job and its impact on the Company’s earnings (the base wage multiple varies from
a multiple of three to twelve).

The process of the final evaluation of targets and the subsequent payment of bonuses takes place in accordance with the process described in the above directive at the end of the year. An employee’s specific bonus amount is subject to approval by the member of the Board of Directors responsible for the area concerned. The payment of senior employees’ bonuses is conditional on the resulting performance of selected economic indicators.

Other Benefits
All Company employees, including executives, are entitled to a CZK 333 per month life insurance contribution under the Social Programme, as provided for in the Collective Agreement. At the same time, they have the option to receive a pension plan contribution of CZK 300–1,500 per month, according to rules stipulated in the Collective Agreement. Employees may also take part in health-focused activities under the WE FIT programme, including vaccinations, health days, medical examinations, training and sports events.

Persons with Executive Authority

In 2016, the Company recorded no loans or guarantees extended to members of the Board of Directors or the Supervisory Board.

No member of the Company’s Board of Directors or Supervisory Board is in a conflict of interest due to membership of another company’s governing bodies.

In 2016, the following changes were made to the Company’s bodies:

Board of Directors:

• Pavol Pitoňák was appointed as a member of the Board of Directors on 20 January 2016
• Marie Kovářová ceased to be a member of the Board of Directors on 31 August 2016

There were no changes in the Supervisory Board in 2016.

Principal activities of members of the Board of Directors and Supervisory Board in other companies, to the extent they are material for the Company, in 2016:

No member of the Board of Directors or Supervisory Board has been convicted of any fraud-related crime.

Cash Income of Persons with Executive Authority in 2016

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The Company’s management comprises only the members of the Board of Directors.

Cash income is defined as the sum of all cash income received by the board member for the 2016 accounting period (in particular, board membership remuneration, executive pay, wages, bonuses, income under other contracts and collective endowment life insurance on death or survival).

Cash income received by members of the Company’s governing bodies directly from the Company totalled CZK 109 million. This includes income both from acting as members of the governing body and from acting as Company executives.

In-kind income is defined as the sum of the values of all non-cash (in-kind) income items that the board member received (in particular executive cars, managerial healthcare programme, and benefits under the Collective Agreement).

Entities in which Česká pojišťovna Holds a Participating Interest Exceeding 10% of its Own Net Current Period Earnings

As at 31 December 2016, on the basis of figures available to Česká pojišťovna as at the compilation date of this Annual Report:

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Standalone Report on Company Management

I. Internal Process of Control over Compilation of the Financial Statements
The information set forth below concerns internal control principles and procedures and rules governing the Company’s and the Group’s approach to risks to which the Company and the Česká pojišťovna Group are exposed in relation to the financial reporting process.

Česká pojišťovna has implemented an internal control and management system that minimises the risk of incorrect reporting, which relates to the ability of the internal information system to provide timely and accurate information for purposes of internal decision-making and for the purposes of external reporting.

At Group level, responsibility for implementing a commensurate system of internal controls is delegated to individual Group companies. Thus, each company is directly responsible for managing this risk.

A unified accounting manual is used by all Group companies to compile the consolidated financial statements. All material Group companies are audited by the same audit firm as Česká pojišťovna.

Česká pojišťovna systematically works to improve its internal control system in the field of financial reporting; this process has accelerated since the Company and its subsidiaries became part of the Generali Group.

II. Compliance with the Code of Corporate Governance
While no code of corporate governance is legally binding on Česká pojišťovna a.s., it voluntarily complies with the Czech Insurance Association’s Code of Ethics in Insurance and the Generali Group Code of Conduct.

Compliance with the Generali Group Code of Conduct and the Czech Insurance Association’s Code of Ethics in Insurance is ensured by the Company’s internal regulations, work directives and the checking processes that have been set up.

In the Generali Group Code of Conduct, a central interest holding the key to the Group’s strategic vision is customer centricity, aimed at consolidating and increasing the successes achieved over a particular period of time. Contractual relations with customers and all relevant communications are governed by principles of correctness, conscientiousness, professionalism, transparency and cooperation in order to find the best solution to satisfy customers’ requirements. The Group attaches paramount importance to maximum customer satisfaction, which it pursues by providing products and services that are subject to high-quality standards and by constantly adapting those products and services to new needs and requirements. Internal processes and computer technologies are instrumental in the attainment of those objectives in tandem with the continuous monitoring of customer satisfaction.

If there is any infringement of the principles laid down by this Code, the Group, where it deems necessary to protect corporate interests, takes appropriate disciplinary action against persons liable for that infringement. Each breach of the Code is analysed and the Company then adopts suitable measures.

The above ethical rules relating to the protection of customer interests permeate all ČP internal regulations. For example, the work directive governing the cooperation of distribution channels and portfolio management roles precludes any activity that would have any adverse effect on customers in the handling of their requirements, brought about by any reprocessing or twisting, or in the event of technical changes between various traders or managers and distribution channels within ČP.

The Generali Group Code of Conduct can be viewed at www.ceskapojistovna.cz/eticky-kodex.

To ensure compliance with the Czech Insurance Association’s Code of Ethics in Insurance, Česká pojišťovna ensures and advocates that its employees and insurance intermediaries are governed in particular by ethical and legal rules set out in Articles III and IV of the Code of Ethics, which establish principles for the proper and diligent representation of the Company and the insurance industry at large, the elimination of conflicts of interests and abuses of office, compliance with the law, good morals, general principles of polite behaviour, confidentiality (even after they cease to work for the Company) and self-education. In relation to customers, it is particularly incumbent on employees and insurance intermediaries to maintain a polite, correct and fair approach with a stress on protecting consumer interests. Entering into insurance with customers who indicate speculative intent is forbidden.

The Czech Insurance Association’s Code of Ethics in Insurance can be viewed at www.cap.cz/o-nas/kodex-etiky.

III. Description of the Principles and Functioning of Company Bodies

Board of Directors of Česká pojišťovna
The Board of Directors is the governing body responsible for managing the Company’s activities and acting in the Company’s name. The Board of Directors takes decisions on all Company matters that are not reserved by law or the Articles of Association for the General Meeting or the Supervisory Board. Its authority ensues from Czech legislation and the Company’s Articles of Association.

The Board of Directors has at least three and no more than nine members. Members of the Board of Directors serve for five-year terms. From among its members, the Board of Directors elects and removes from office one Chairman and one Vice-Chairman.

The composition of the Board of Directors as at the date the Annual Report was published is set forth on page 17 of this Annual Report.

Meetings of the Board of Directors are convened by the Chairman of the Board of Directors by an invitation specifying the place, date, time and agenda. The invitation must be delivered to members at least three days before the meeting. A meeting may be convened orally, by telephone or by means of other communication equipment, subject to the approval of all members of the Board of Directors. The Board of Directors has a quorum if an absolute majority of members is present at a meeting.

Each member of the Board of Directors has one vote. The Board of Directors takes decisions by a majority vote of those members present.

The Board of Directors may take decisions outside of its meetings in writing or by technical means, subject to the approval of all members of the Board of Directors. In this case, the draft decision is submitted to all members of the Board of Directors for comments, with a specification of the deadline by which each member is to respond. A member who does not respond by the deadline is considered to oppose the draft. A decision taken outside of a meeting must be recorded in the minutes of the next ordinary meeting of the Board of Directors, accompanied by an account of the vote.

A member of the Board of Directors holds such office in person; however, this does not prevent a situation where a member authorises another member of the same body to vote on his behalf in his absence in any individual case.

Minutes must be taken of meetings of the Board of Directors and of the decisions adopted. The Chairman of the Board of Directors ensures that minutes are drawn up within 30 days of the end of the corresponding meeting.

In accordance with Section 156 of the Civil Code, the competence of the individual members of the Board of Directors is broken down, by a decision of the Board of Directors, into designated fields. A member of the Board of Directors has the authority to take decisions on behalf of the Board within the scope of the field assigned to him. In negotiations within the bounds of his defined field, he may also use the designation of his position in addition to a designation of his membership of the Board of Directors in internal relations. However, in external relations, he only presents himself as a member of the Board of Directors.

The breakdown of the competence of individual members of the Board of Directors into different fields does not absolve other members of the obligation to oversee how the affairs of the legal entity are being managed, nor does it absolve them of the obligation to legally act and sign on behalf of the Company in the manner laid down in the Articles of Association as reflected in the entry in the Commercial Register.

Breakdown into fields:

• Finance & operations management – placed in the competence of the member of the Board of Directors, within the scope of the defined field, who is entitled to use the title of Chief Financial Officer.
• Underwriting – placed in the competence of the member of the Board of Directors, within the scope of the defined field, who is entitled to use the title of Chief Insurance Officer.
• Retail sales management – placed in the competence of the member of the Board of Directors, within the scope of the defined field, who is entitled to use the title of Chief Sales Officer.
• Retail sales management – placed in the competence of the member of the Board of Directors, within the scope of the defined field, who is entitled to use the title of Chief Sales Officer.
• Corporate sales management – placed in the competence of the member of the Board of Directors, within the scope of the defined field, who is entitled to use the title of Chief Corporate Business Officer.
• Organisational units of the Chief Executive Officer – placed in the competence of the member of the Board of Directors, within the scope of the defined field, who is entitled to use the title of Chief Executive Officer.

The content of the designated fields is defined by the tasks of employees in the direct line of management of the executive assigned, within the Company’s organisational chart, to the specific field of a member of the Board of Directors.

Česká pojišťovna Supervisory Board
The Supervisory Board of Česká pojišťovna is the Company’s oversight body. It oversees the exercise of the responsibilities incumbent upon the Board of Directors and the pursuit of the Company’s business activities. Its competence is derived from Czech legislation and the Company’s Articles of Association. In particular, the Supervisory Board oversees the functionality and effectiveness of the Company’s management and control system, as well as matters related to its strategic direction.

The Supervisory Board of Česká pojišťovna has at least three and no more than five members. Members of the Supervisory Board are appointed and removed by the Company’s General Meeting. Members of the Supervisory Board serve for terms of five years.

Meetings of the Supervisory Board are convened by the Chairman of the Supervisory Board by an invitation specifying the place, date, time and agenda. The invitation must be delivered to members at least three days before the meeting. A meeting may be convened orally, by telephone or by means of other communication equipment, subject to the approval of all members of the Supervisory Board. The Supervisory Board has a quorum if a majority of members is present.

Each member of the Supervisory Board has one vote. The Supervisory Board takes decisions by a majority of those members present.

The Supervisory Board may take decisions outside of its meetings in writing or by technical means, subject to the approval of all members of the Supervisory Board. In this case, the draft decision is submitted to all members of the Supervisory Board for comments, with a specification of the deadline by which each member is to respond. A member who does not respond by the deadline is considered to oppose the draft. A decision taken outside of a meeting must be recorded in the minutes of the next ordinary meeting of the Supervisory Board, accompanied by an account of the vote.

Minutes must be taken of meetings of the Supervisory Board and of the decisions adopted. The Chairman of the Supervisory Board ensures that minutes are drawn up within 30 days of the end of the corresponding meeting.

The Supervisory Board’s activities are governed by an activity plan, which the Supervisory Board approves for each half-year in advance. Outside of the activity plan, the Supervisory Board may discuss such matters as may arise between its meetings, provided that the nature of such matters so requires. Meetings of the Supervisory Board are held as needed, but not fewer than four times per year.

Individual checks, investigations, examinations, and inspections of Company materials, etc., are conducted by members of the Supervisory Board either individually or in groups authorised by the Supervisory Board in a resolution adopted at a Supervisory Board meeting or as separately authorised by the Chairman outside of a Supervisory Board meeting. Afterwards, at the immediately following Supervisory Board meeting, the Supervisory Board is informed of the activities conducted by individual members or groups authorised by the Supervisory Board and of the results thereof. If any serious findings or circumstances arise from the checks, the Chairman of the Supervisory Board is informed of such on an on-going basis, even between Supervisory Board meetings.

The composition of the Supervisory Board as at the date the Annual Report was published is set forth on page 19 of this Annual Report.

Management Committee
The Management Committee discusses significant matters in the operational management of the Company. The Management Committee may, on the instructions of the Board of Directors, coordinate the activities of the Company and the companies it manages in the Czech Republic in accordance with the Generali Group’s holding policy.

The rules on the convening and meetings of the Board of Directors apply mutatis mutandis to the convening and meetings of the Management Committee. Other persons designated by the Chairman of the Board of Directors may be invited to Management Committee meetings.

ČP Audit Committee
The Česká pojišťovna Audit Committee is a Company body that, in particular, monitors the procedure applied in the preparation of financial statements, the effectiveness of the Company’s internal control, the risk management and internal audit system, and the process behind the statutory auditing of the financial statements and, where appropriate, consolidated financial statements, assesses the independence of the statutory auditor and audit firm, and the provision of non-audit services to the auditee, and recommends an auditor to the supervisory body.

The Audit Committee consists of three members appointed by the General Meeting based on their expertise and qualifications for carrying out their audit-related responsibilities. Two Audit Committee members are independent and have at least three years’ experience of accounting or statutory auditing.

The competence of the Audit Committee ensues from Czech laws, in particular Act No 93/2009 on auditors, as amended, and the internal regulations of Česká pojišťovna. The Committee reports to the Company’s General Meeting and, in certain areas, also operates as an advisory body to the Board of Directors. Its decisions constitute recommendations to the Board of Directors, which bears final responsibility for the Company’s system of internal controls, the proper conducting of internal controls, and the risk management system. The Audit Committee also keeps the Supervisory Board informed of the results of its activities.

The Audit Committee meets at least twice per year, and the Chairman of the ČP Board of Directors, the ČP Chief Executive Officer, the ČP Internal Audit Director, and, where appropriate, the external auditor have standing invitations to attend the meetings as guests. In addition, line managers and other Company employees may be invited to Audit Committee meetings as necessary to provide the Committee with information. Their participation, however, is limited only to the relevant item(s) on the agenda.

The composition of the Audit Commitee as at the date the Annual Report was published is set forth on page 19 of this Annual Report.

The Company’s Annual General Meeting is held at least once per year, no later than six months from the last day of the previous accounting period. The Board of Directors is entitled to convene an Extraordinary General Meeting at any time. The Supervisory Board convenes the General Meeting whenever it is in the Company’s interests to do so.

The General Meeting has a quorum if shareholders are present, the aggregate nominal value of whose shares is at least fifty per cent (50%) of the Company’s share capital.

After verifying the quorum, the General Meeting elects its chairman, clerk, two verifiers of the minutes, and persons authorised to count votes. The persons elected by the General Meeting to these offices may or may not be shareholders. Until the chairman is elected, the General Meeting is chaired by a member of the Board of Directors authorised to do so by the Board of Directors. If the General Meeting has been convened by the Supervisory Board, until election of the chairman it is chaired by a person authorised to do so by the Supervisory Board. If the General Meeting has been convened on the basis of a court order and the court has not designated a General Meeting chairman, it may be chaired by any shareholder until such time as the General Meeting elects a chairman.

Should a shareholder at the General Meeting make a motion in a matter that is to be discussed in the agenda set for the General Meeting in question (an “original motion”), an entirely new motion of the shareholder’s own (a “new motion”) or a motion revising or otherwise amending an original motion (a “counter-motion”), then she is required – in the case of counter-motions to motions the content of which is set forth in the invitation to the General Meeting or in the General Meeting announcement, or in the event that a notarial record must be made of the General Meeting’s decision – to deliver his motion or counter-motion in writing to the Company at least five working days prior to the date of the General Meeting. This rule does not apply to motions for election of specific persons to Company bodies.

The Board of Directors is required to publish its counter-motion along with its opinion, if possible, at least three days prior to the date announced for the General Meeting.

Should a shareholder wish to make a new motion or counter-motion during the General Meeting, he must submit it to the General Meeting chairman.

Voting at the General Meeting takes place by ballot.

If the General Meeting does not have a quorum within one (1) hour of the time set forth in the invitation as the beginning of the General Meeting, the convener convenes a compensatory General Meeting under the conditions and in the manner set forth in the Business Corporations Act.

Česká pojišťovna currently has a sole shareholder, who wields the authority of the General Meeting in accordance with the Business Corporations Act and the relevant procedures above.