PZU Group’s asset and liability structure

At the end of 2018, consolidated equity stood at PLN 37,407 million, down from the end of 2017 by PLN 153 million. The value of non-controlling interests fell by PLN 479 million to PLN 22,482 million versus last year, among others, in connection with the dividend payment by Pekao of PLN 2,074 million, with PLN 1,659 million of that being the dividend attributable to non-controlling interests, as well as the effect of IFRS 9 implementation. The declines were partially offset by the result generated by Alior Bank and Pekao attributed to non-controlling shareholders amounting to PLN 2,155 million. Equity attributable to the parent company’s shareholders rose by PLN 326 million compared to the end of the previous year – as an effect of the net result attributable to the parent company generated in 2018 totaling PLN 3,213 million, partially offset by of the distribution of profit for 2017, including the allocation of PLN 2,159 million as a dividend and the impact exerted by applying IFRS9.

The largest item of equity and liabilities at the end of 2018 were financial liabilities representing 71.9%.

The value of this item reached PLN 236,316 million and included in particular:

• l client deposits liabilities in the amount of PLN 206,909 million (an increase in current and term deposits in Pekao and Alior Bank by PLN 9,500 million compared to December 2017);
• liabilities on the issue of own debt securities totaling PLN 12,009 million, including:
• PLN 5,922 million on bonds, of which EUR 850 million are Eurobonds issued by PZU Finance AB, a wholly-owned subsidiary; the balance was up by PLN 2,101 million over 2017, chiefly due to Pekao’s issue of bonds;
• PLN 4,542 million on certificates of deposit issued by Bank Pekao and Alior Bank;
• PLN 1,545 million on covered bonds issued by Bank Pekao.
• subordinated liabilities of PLN 6,061 million. The balance rose from the end of 2017 by PLN 742 million chiefly due to the issue of subordinated bonds by Pekao in October 2018 for PLN 750 million. SECTION 8.3 DEBT FINANCING

As at the end of 2018, technical provisions totaled PLN 45,839 million, which accounted for 14.0% of equity and liabilities (PLN +1,281 million compared to the end of 2017). The movement in this item resulted in particular from:

• higher provision for unearned premiums in non-life insurance resulting mainly from growing sales of insurance in Poland;
• remeasurement of provisions, mainly in motor insurance, for claims for general damages due to being in a vegetative state;
• lower provisions in unit-linked life insurance products due to the negative result on investment activity, and additionally the level of payouts and benefits in the product portfolio exceeded for the first time the amount of client contributions;
• higher mathematical provisions in continued business associated with the indexation of amounts insured and the higher average age of the insureds.

The balance of other liabilities as at 31 December 2018 was PLN 7,407 million compared to PLN 9,096 million at the end of 2017. The decrease pertained in particular to liabilities on account of outstanding transactions on financial instruments and liabilities to banks for payment documents cleared by the National Clearing House.

Structure of PZU Group’s equity and liabilities (in %)

At the end of 2018, the value of contingent liabilities was PLN 57,667 million, having fallen by PLN 1,311 million versus last year. The value of contingent liabilities granted to the clients of Alior Bank and Bank Pekao was PLN 56,436 million. The balance of the PZU Group’s contingent liabilities consisted in particular of PLN 13,211 million in overdraft and credit cards contingent liabilities , PLN 28,523 million in contingent liabilities related to tranche-based credits and loans and PLN 7,682 million in granted guarantees.

Moreover, the balance of contingent liabilities included guarantees for the underwriting of securities totaling PLN 4,470 million.