On 26 August 2013, the Management Board of PZU approved the Capital Structure and Dividend Policy for the PZU Group for 2013-2015, which on the same date was approved by the Supervisory Board with the wording prepared by the Management Board.
The main objective of the Capital Structure and Dividend Policy is to reduce the cost of capital by optimizing the balance sheet structure through the conversion of part of equity to less expensive debt capital, while maintaining a high level of security and development funding.
The Capital Structure and Dividend Policy of the PZU Group for the years 2013-2015 assumes dividend payment calculated on the consolidated net profit and capital surplus, where the total dividend to be paid out based on capital surplus 2013 – 2015 cannot exceed PLN 3 bn. Consequently, ROE will remain high and the Total Shareholder Return will increase.
The planned new capital policy implementation schedule assumes:
- paying a portion of the surplus capital of PLN 1.7 bn as an interim dividend of 2013 profit (paid on 19 November 2013);
- issue of subordinate debt of up to PLN 3 bn;
- paying other portions of the surplus capital as dividend,
- up to PLN 1.3 bn, for 2014 and 2015.
Book value per share and gross accumulated dividend per share paid in the accounting year [in PLN]
Source: PZU data.
Dividend payment from capital surplus will depend on the issue of subordinated debt (up to PLN 3 bn) in line with the requirements of the Act on Insurance Activity and Solvency II. If the subordinated debt is not issued or it its amount is insufficient, or in case the Polish Financial Supervision Authority does not approve classification of the subordinated debt to own funds, the dividend from capital surplus will not be paid and the interim dividend (paid on 19 November 2013) will constitute a portion of the dividend calculated based on the consolidated net profit for 2013.
Key principles of the new capital policy are the following:
- focus on TSR;
- maintaining a safe level of own funds. Assuming maintenance of:
- solvency margin coverage ratio of the PZU Group of ca. 400% and solvency margin coverage with own funds excluding subordinated debt of at least 250%;
- equity level corresponding to Standard & Poor’s AA rating;
- sufficient funds for development and acquisitions in the coming years.
In the next few years the Management Board does not intend to increase the share capital through the issue of shares.
In December 2012, all insurance companies operating on the Polish market received a Recommendation of the Head of Polish Financial Supervision Authority regarding restrictions on dividend payment. It recommended a prudent dividend policy and using profits generated in 2012 to enhance capital standing of the companies. Further, it recommended that only companies meeting specific criteria (detailed in the Recommendation) might consider dividend payment. Insurance companies meeting the specified criteria should limit dividend payment to the maximum of 75% of the 2012 profit maintaining the capital requirement coverage ratio after dividend of at least 110%. At the same time, the Recommendation allowed payment of dividend amounting to 100% of 2012 profit if the capital requirement coverage ratio after dividend is higher than 160% for section I companies or 200% for section II companies (as at 31 December 2012) and if the newest stress tests carried out for all tested risk types indicated the capital requirement coverage ratio of at least 110% and the ratio of covering technical provisions with relevant assets of at least 100%.
On 23 May 2013, the General Shareholder Meeting of PZU distributed the net profit for 2012 of PLN 2,580.7 bn in the following manner:
- PLN 2,564.7 m for shareholders’ dividend (PLN 29.70 per share);
- PLN 6.1 m to supplementary capital;
- PLN 10.0 m to appropriations to the Company’s Social Benefit Fund.
According to the Resolution on distribution of the net profit for the year ended 31 December 2012, 23 August 2013 was the dividend date, while 12 September 2013 was the payment date.
On 26 August 2013, pursuant to Article 349 of the Code of Commercial Companies, the Management Board of PZU adopted a resolution concerning the advance payment of dividend expected at the end of the 2013 financial year of PLN 1,727,046 thousand, i.e. PLN 20.00 per share. The advance was paid from profit generated during the six months ended 30 June 2013 in the amount of PLN 4,679,913 thousand, recognized in the separate financial statements of PZU for this period prepared in accordance with Polish Accounting Standards. On the same date, the Supervisory Board of PZU passed a resolution accepting the payment of the interim dividend.
According to the resolution, 12 November 2013 was the dividend date, while 19 November 2013 was the payment date.
Following the Recommendation regarding dividend payment by insurance companies from profit generated in 2012, the supervisory body issued a recommendation regarding the payment of dividend from 2013 profit. In a letter of 11 December 2013 the supervisory body recommended that the insurance companies continue their prudent dividend policy using the generated profit to enhance their capital standing. At the same time, when deciding on the dividend amount, the insurance companies should include additional capital needs within the 12 months of the date of approving 2013 financial statements, among others arising from the growth of costs caused by changes in market and legal conditions and capital needs arising from the necessity to achieve compliance with Solvency II.
The supervisory body recommended the dividend to be paid only by insurance companies that meet all of the following criteria:
- received BION risk assessment above 2.5 for 2012;
- in 2013 did not disclose shortage of own funds to cover the solvency margin or guarantee capital or a shortage of assets to cover technical provisions (in quarterly or monthly periods);
- in 2013, were not included in a recovery plan referred to in Article 187.1 to 187.3 and 187.8 of the Act on Insurance Activity;
- as at 31 December 2013 their capital requirement coverage ratio (defined as the minimum of own funds/solvency margin and own funds/guarantee capital) reached at least 160% for section I companies or 200% for section II companies;
- whose stress tests carried out as at 31 December 2013 for all tested risk types indicated the capital requirements coverage ratio of at least 110% and the ratio of covering the technical provisions with relevant assets of at least 100%.
Insurance companies meeting the above criteria should limit dividend payment to the maximum of 75% of the 2013 profit maintaining the capital requirement coverage ratio after dividend of at least 110%. At the same time, the supervisory body allows using the entire 2013 profit for dividend payment if the coverage of capital requirements after dividend remains higher than the one determined in point 4 and the criterion determined in point 5 is met as at 31 December 2013 after dividend.
On the 13 May 2014 PZU Management Board adopted a resolution to the General Sherholder Meeting concerning distribution of profit for 2013. PZU Supervisory Board approved this resolution.
Comparison of the new and old PZU’s dividend policy
|New dividend policy *)||Old dividend policy|
|base for calculation|
|- payout ratio||50% - 100% of consolidated net profit of PZU Group under IFRS||50% - 100% of consolidated net profit of PZU Group under IFRS and not higher than 100% of single mother company net profit under PAS|
|- dividend from surplus capital||total amount of dividends paid from surplus capital in 2013 – 2015 cannot exceed PLN 3 billion||n/a|
|Solvency margin coverage||shareholder funds including subordinated debt at approximately a 400% solvency margin (as at the end of the financial year) and PZU Group’s shareholder funds net of subordinated debt at a level no lower than a 250% Solvency I margin for the PZU Group||min. 250% coverage of Solvency I|
|Technical provisions coverage ratio||assets to cover the provisions of the various PZU Group companies, i.e. PZU SA and PZU Zycie at a level no lower than 110%;||n/a|
|Capital structure||optimal financing structure by replacing the capital surplus with subordinated debt up to an amount no higher than PLN 3 billion and not to exceed a 25% cap of shareholder funds to cover the solvency margin||n/a|
|Rating||retaining equity at a level corresponding to a AA rating according to Standard & Poor’s methodology||retaining equity at a level corresponding to a AA rating according to Standard & Poor’s methodology|
|Development||when determining the dividend the PZU Group’s additional capital needs must be taken into account, including acquisitions, over the upcoming twelve months after the PZU SA Management Board adopts the PZU Group’s consolidated financial statements for a given year||when determining the dividend the PZU Group’s additional capital needs must be taken into account, including acquisitions, over the upcoming twelve months after the PZU SA Management Board adopts the PZU Group’s consolidated financial statements for a given year|
|Other||no equity issues by PZU SA in the upcoming years||n/a|
*) New dividend policy for 2013-2015 was adopted on 26 August 2013
Dividend paid by PZU in 2013-2010
|PZU Group’s consolidated net profit (in PLN million)||3,295.11||3,253.83||2,343.95||2,439.23|
|PZU’s standalone net profit (in PLN million)||5,106.35||2,580.72||2,582.30||3,516.71|
|Dividend paid from the profit for the financial year (in PLN million)||4,663.02*||2,564.66||1,936.88||2,245.16|
|Dividend per share (in PLN)||54.00*||29.70||22.43||26.00|
|Dividend payout ratio on consolidated profit||89%||79%||83%||92%|
* As requested by the AGM dated May 13, 2014, PZU Management Board proposed to pay a dividend for 2013 years in the amount of PLN 4 663 024 200, ie PLN 54 per share. November 19 was the payment of PLN 1 727 046 000, ie PLN 20 per share from capital surplus, in the form of an interim dividend for 2013. Payment of the remainder of the PLN 2 935 978 200, ie PLN 34 per share is expected in two tranches of PLN 1 467 989 100, ie PLN 17 per share on 8 October 2014 and 15 January 2015. The proposed dividend record date is September 17, 2014.