EU – Baltic States, Financial Services, Insurance, Legislation, Mergers and take-overs

In line with PZU’s 2.0 Strategy for 2012-2014, PZU aims to build a substantial business outside of Poland. The purchase of RSA Insurance Group plc’s assets in Poland and in the Baltic States is a key milestone in fulfilling this strategic objective.

- I am pleased that we can announce today the implementation of another, and such an important, element of the PZU’s strategy. This acquisition places us in a leading position in the insurance industry in our region – says Andrzej Klesyk, CEO of PZU S.A. – The acquired assets are companies with a healthy business, operating in growing markets with attractive prospects. It is also important for us that the acquisitions took place in countries that for a decade have been part of the European Union. Starting from next year, all three Baltic countries will be operating in the Eurozone. For us it means stability and predictability.

Acquisition of Link4 in Poland – the leader in the direct insurance market – will complement PZU’s strategy. This will allow us to reach different client groups, which prefer the direct service model, first implemented in Poland by Link4.

- Bringing the Link4 brand into PZU’s portfolio will enable us to offer insurance services to customers previously not served by PZU. The market share of players specializing in direct insurance has in the past five years increased two and half times. Building a new brand from the scratch would be difficult, costly, lengthy and risky. This acquisition will enable the PZU Group to participate in this growth sector through an established brand. As a result, we will be the market leader in insurance sold in the traditional agency model and in the increasingly popular direct model – says Andrzej Klesyk.

Through the Link4 acquisition we will gain direct channel know-how. This will complement PZU’s existing distribution channels and is another strong argument in favor of the transaction.

European examples show that the leading insurers in comparable markets often use many brands to offer their products. In Poland, three out of the six largest players have a multi-brand business model.

All transactions are expected to complete by the end of 2014.

Basic financial information about acquired companies

RSA activities in the Baltic States cover a wide range of insurance products serving both individual and corporate clients. As of December 31 2013 the value of the assets of RSA in the Baltic States was approximately EUR309m and its net assets amounted to approximately EUR106m. Gross profit in 2013 amounted to approximately EUR18m. The acquisition price for assets in the Baltic States amounted to approximately EUR270m, including a dividend of EUR12m payable to RSA Insurance Group plc.

Link4 is the leading direct insurer in Poland with a wide range of insurance products targeted for both individual and corporate clients.

As of December 31 2013 the value of Link4’s assets in Poland amounted to PLN662m and its net assets were PLN134m. The gross profit in 2013 amounted to PLN30m. The acquisition price for Link4’s assets in Poland was approximately EUR90m.

Today PZU is present in the Baltic States

In the Baltic States, the PZU Group conducts its insurance business through two companies registered in Lithuania: PZU Lietuva and UAB PZU Lietuva Gyvybes Draudimas.

In 2013 PZU Lithuania earned gross written premium of LTL189m, which is 16.7% higher than 2012. In 2013, the premium gained by PZU Life Lithuania amounted to LTL26.1m, i.e. an increase of 24%. In 2013, PZU Lithuania was the third largest insurer in the property and casualty Lithuanian insurance market with a market share of 13.6% (13.3% in 2012). In contrast, the market share of life insurance PZU Life Lithuania was 4.2% (compared to 3.7% in 2012).

In 2013 PZU’s operations in Latvia and Estonia were at an early stage. The office in Riga first sold insurance in December 2012. In 2013, new products have been introduced (OC
and AC) and tailored to the requirements of the Latvian market. The branch of PZU Lietuva was registered on 14 November 2012. The branch started its operations between the second and third quarter of 2013.

Deloitte Advisory Sp. z o.o. was the financial advisor of PZU in relation to the acquisition of the Baltic assets, in which, inter alia, it conducted a valuation of the acquired company as well as an actuarial, financial and tax due diligence. EY was the financial advisor of PZU in the process of acquiring Link4, within which it conducted a valuation of the acquired company, as well as an actuarial, financial and tax due diligence. Deutsche Bank acted as a financial advisor and delivered a fairness opinion to the Management Board of PZU in relation to the Baltic acquisitions. Linklaters handled the legal part of the transactions with the support of the local law firm Sorainen in the Baltic markets.