Report on Operations

Customer Services

The Customer Services Department is responsible for customer service via the communication centre, insurance contract administration, the entry of contracts in systems, contract amendments, payment processing, and the handling of the entire claim settlement agenda.

One of Česká pojišťovna’s strategic objectives is to increase customer satisfaction with the services rendered. The customer satisfaction index, used to obtain customer feedback at eight selected key points of interaction on a rolling basis, increased in 2015 by three percentage points, and is of the standard expected of a mature financial institution.

Besides activities geared towards enhancing customer satisfaction, the main claim settlement themes in 2015 centred on the implementation of electronic inspections of vehicles, property and agricultural damage, and on the advanced management of claims costs.

One of the Company-wide customer satisfaction activities was a project to simplify and speed up settlement processes in response to SME and other business claims. This activity was prompted by an extensive broker satisfaction survey. We also made headway in the technological support needed for electronic inspections. Last year we also rolled out drone support as part of the damage inspection process.

In the settlement of motor insurance claims, we focused on nurturing cooperation with vehicle dealers and service centres, windscreen fitters and car rental companies. We launched new applications for partner support, hail damage calculations, rental charge calculations and windscreen damage calculation updates.

In personal liability insurance, we increased the number of claims settled in simplified procedure for customers.

We reported notable achievements in automated fraud detection, where we made full use of automated detection tools, predictive modelling and social network analysis.

In our insurance and payment administration in 2015, we focused on modernisation and process simplification, and on the implementation of new solutions for external and internal customers in order to offer customers reliable, high-quality and fast services. For example, at the start of the year we successfully trialled and subsequently used an “online document repository” service to send electronic tax certificates, and in the autumn we introduced the biometric signing of documents across our branch network, with subsequent electronic delivery to customers. The upshots are faster customer service, environmental friendliness, and customer satisfaction with this innovation. In terms of payments, we once again expanded payment options for customers in the form of online electronic banking. In 2015, we also broadened our digitisation centre to concentrate on digitising Generali Group documents. We incorporated all of these modern activities without diminishing the quality of service provision in the processing of the insurance contracts concluded, as illustrated by the improvement in overall customer satisfaction by four percentage points.

Electronic media usage also intensified in customer contact in 2015. More than 250,000 customers took up the option of creating a Customer Zone for their insurance as a vehicle for secure communication with the Company, including the receipt of correspondence, and as a means of retrieving information about contracted insurance products, including any updates and adjustments, quickly and easily.

In 2015, Communication Centre operators fielded nearly a million incoming calls, made 1.9 million outgoing calls, and processed 1.5 million electronic and paper documents. In addition to handling service requests, the Communication Centre also engaged in telephone sales of policies and the active retention of existing clients. An online chat facility has now been made available to Česká pojišťovna customers. The use of modern communication tools is one of a whole raft of measures highly appreciated by our customers.

The complaints team’s transfer to the Ombudsman Department at the end of 2015 rounded off the alignment of the complaint handling perspective in order to obtain uniform feedback from customers and improve our services. In our complaint handling, we are constantly striving to examine everything assiduously from both a professional and a business point of view. We keep in contact with customers when handling their complaints. Where possible, we deal with complaints by telephone as this is a faster and more intelligible form of communication and often clears up any confusion. After evaluating complaints carefully, we then provide feedback to the competent departments so that they are able to eliminate such complaints as fully as possible.

By enhancing service quality and efficiency, the various Customer Service units made a sizeable contribution to the overall earnings result reported by Česká pojišťovna.

Investment Policy

Financial investments stand alongside insurance and reinsurance as another important area of operations for the Company. They contribute significantly to overall Company assets and are financed primarily from insurance provisions (for this reason, they are sometimes referred to as “financial placements of insurance provisions”), as well as from equity. Financial placements of insurance provisions account for 93% of overall financial investments, with the remaining seven per cent financed from other sources.

Requirements regarding the structure of financial placements of insurance provisions are set forth in Implementing Decree No 434/2009 implementing certain provisions of the Insurance Act (Act No 277/2009, as amended). That decree regulates the structure of a substantial portion of financial investments through a system of prescribed limits. Česká pojišťovna reflects these limits in its internal policies and procedures by means of internal regulations with the aim of achieving safety, liquidity and profitability in order to ensure that the Company is fully capable of meeting its commitments to customers.

The structure and volume of the Company’s financial investments as at 31 December 2015 are shown in the graph and table entitled “Structure of Financial Investments (IFRS, Book Value), by Business Segment”.

Structure of Financial Investments (IFRS, Book Value), by Business Segment

The 2015 gross investment result before adjustment for portfolio management fees was a profit of CZK 2.1 billion.

The world’s major economies went off at various tangents in 2015. While the European economy benefited from a combination of a more accommodative monetary policy stance, pro-growth fiscal policy, and plunging commodity prices, emerging economies grappled with a range of negative factors. The unabating slowdown in China’s growth resulted in a sharp drop in commodity prices, hurling commodity-oriented economies – with Russia and Brazil leading the way – into a steep recession. The Czech economy, for its part, profited from the upswing in Europe and the robust growth in public investment as remaining funds from the EU’s previous budget period were hoovered up. Stifled commodity prices prompted low inflation, allowing central banks to keep monetary policy loose. During the year, the ECB cut its deposit rate to as little as -0.3% and expanded its asset-buying programme, while the Czech National Bank extended its commitment to keep the Czech crown above CZK 27 per EUR until the end of 2016. Conversely, the FED, in defiance of low inflation, proceeded to make its first hike in interest rates. The capital outflow this triggered was a contributory factor behind the poor performance reported by currencies and financial assets in emerging economies. Developed countries’ bond and equity markets fared relatively well, although the fact that risk-free interest rates descended into negative values constitutes a significant risk to portfolio performance in the future.

The opening months of 2016 have been a difficult spell for the global economy. Wretched developments in key emerging economies have been fuelled by instability on financial markets, setting off a slump in share prices and bond yields. This situation has necessitated several interventions by central banks, and more will be made in the future. As far as the US FED is concerned, we can expect at least a half-year break in the cycle of interest rate increases. The ECB has indicated that it is prepared to stoop even lower than the current -0.3% for its deposit rate and broaden its asset-buying programme. The CNB has not been caught napping either, also hinting that it could introduce negative interest rates, mainly with a view to maintaining an exchange rate of CZK 27 per EUR at least until the end of the year. The economic situation in the Czech Republic and Europe remains relatively favourable thanks to a combination of the loosened monetary policy and the decline in energy prices. Nevertheless, the end of opportunities to draw on EU funds within the scope of the previous budget period will have adverse repercussions in the Czech Republic as this will result in lower public investment. The continuing relaxation of monetary policy will keep a lid on bond yields, which will often venture into negative territory. The greatest value added continues to be identified in high-quality corporate and government bonds, which offer an attractive return for the risk and should be impervious to the persistent stress on financial markets and in the economy. There is also room in the portfolio for equity investments and property, which pay out regular and relatively high dividends.

Financial Investments within the Life Insurance Segment

At the end of 2015, the life insurance segment contained a total of CZK 61.6 billion in financial investments. Of this amount, CZK 7.8 billion (12.7%) comprised investments covering provisions for unit-linked policies where the investment risk is borne by the policyholder. This is equal to 1% year-on-year growth. In the segment of regular-premium insurance, unit-linked life insurance continues to account for most newly concluded contracts, which means that the share of the corresponding provisions in overall life insurance provisions will continue to rise in the future. The remaining financial investments in the life segment are financed by conventional life insurance provisions and by a portion of the Company’s own equity allocated to this segment. For the most part, this money is invested in fixed-income instruments (CZK 42.9 billion), consisting mainly of debt securities (CZK 41.9 billion), especially Czech and foreign government bonds and corporate bonds of issuers generally with an investment grade rating, and term deposits at capital-intensive domestic and foreign banks (CZK 0.6 billion).

In accordance with a feature typical for life insurance liabilities, i.e. their longer time frame, debt securities covering life insurance provisions have, on average, longer to maturity. The aim is to safeguard a sufficient and stable yield in the long run that will enable obligations arising from insurance contracts to be met. In terms of accounting classification, 90% of debt securities are classified as available-for-sale financial assets, so as to align the reporting of their result with the method used to account for insurance liabilities, and reduce earnings volatility resulting from changes in market interest rates.

Structure of Financial Investments (IFRS, Book Value), by Life Insurance Business Segment

The second largest group, by volume, in the structure of financial investments comprises equity securities (shares, unit certificates, and other variable-yield securities), accounting for 10.3%, or CZK 6.3 billion in absolute terms, at the end of 2015. These instruments are purchased for the portfolio to act as a counterweight to fixed-interest instruments for purposes of risk diversification and to optimise overall medium- and long-term returns.

The investment portfolio is rounded out by other fixed assets. Here, Česká pojišťovna has investments in buildings and land, taking the form of direct ownership of real estate or equity in companies which own the real estate and engage in the management and letting thereof as their core activity. In the past few years, allocations to this investment segment have been steadily growing, and at the end of the year investments here had a book value of CZK 4.5 billion (a share of 7.3%). Against a background of low interest rates, investment property is a suitable source of higher, long-term stable yield, and also offers the opportunity of capital gains as the market price of the property rises.

The gross return on life financial investments, before the deduction of management fees, was CZK 1.636 billion. Of this amount, investments covering insurance provisions where the risk is borne by the policyholder accounted for CZK 108 million. Interest on debt securities was the biggest source of returns.

Financial Investments within the Non-life Insurance Segment

Investments in the non-life segment are financed by non-life insurance provisions and the equity allocated to this segment. Since non-life liabilities are shorter than life liabilities, there are more assets with shorter times to maturity in the portfolio, as well as more liquid instruments, which can be readily converted into cash when needed to pay insurance claims.

As at 31 December 2015, the book value of the non-life insurance portfolio was CZK 20.5 billion; 88.8% (CZK 18.2 billion) of the portfolio consisted of fixed-income instruments, of which debt securities had a book value of CZK 15.7 billion, receivables under reverse repo transactions with CNB bills CZK 2 billion, and term deposits with banks CZK 709 million. The remaining 11.2% of the portfolio was invested in equity securities. Defined by accounting classification, the overwhelming majority of financial investments are classed as available-for-sale assets.

Structure of Financial Investments (IFRS, Book Value), by Non-life Insurance Business Segment

The total return on financial investments within the non-life insurance segment, before the deduction of management expenses, was CZK 449 million in 2015. As in the life insurance segment, the biggest contributor to this result was interest income from bonds.

Structure of Financial Investments (IFRS, Book Value), by Business Segment

XLS

Reinsurance

Česká pojišťovna’s reinsurance programme is a long-term contributor to the Company’s balanced earnings and stability. As a risk management tool, reinsurance protects Česká pojišťovna, along with its customers and shareholders, from unexpected individual or catastrophic events, as well as from random variations in loss frequency. Analyses of reinsurance needs and the optimisation of the reinsurance structure take place using modern dynamic financial analysis tools in collaboration with Holding experts and with the support of reinsurance brokers. Each year, the reinsurance programme is modified by the Holding to ensure that it reflects changes in the portfolio and the product line.

Česká pojišťovna’s principal and obligatory reinsurance partner is the Group’s captive reinsurer, GP Reinsurance EAD, based in Bulgaria. Through GP Reinsurance EAD, risks are further retroceded into the Group’s reinsurance contracts by Assicurazioni Generali. Thanks to this optimisation, Česká pojišťovna can profit from the advantages of Group coverage and thereby further reduce reinsurance costs while expanding coverage terms. Group rules determine the maximum possible exposure that Česká pojišťovna may have to each type of insurance.

Thanks to intensive work detailing information on individual risks in the portfolio, Česká pojišťovna is able, through the use of sophisticated models, to control its exposure to risks arising from catastrophes. Currently, flood losses are modelled regularly over the personal lines, commercial lines, and large risks portfolios. Gale exposure is modelled in a similar structure.

Česká pojišťovna is perceived by partners and affiliates as a stable and strong reinsurance partner in its own right. This fact is reflected in the volumes of obligatory and facultative reinsurance in the area of corporate customers and large risks.

Nuclear Pool

The Czech Nuclear Insurance Pool (“CNIP”) is an informal consortium of non-life insurers based on the co-insurance and reinsurance of nuclear risks. It offers insurance and reinsurance services for liability and material risks, including risks related to the transportation of nuclear material.

The CNIP operates both as an insurer of domestic risks and in the area of inward reinsurance. Due to the unique character of nuclear risks, individual insurance companies do not usually insure them. The insurers in the CNIP each provide their own net lines, the sum of which forms the overall capacity of the CNIP for individual types of insured risks. The CNIP’s overall capacity has not changed in recent years. Česká pojišťovna’s net exposure remained unchanged in 2015. Within the CNIP, an Agreement on the Several Liability of Members for the current year was concluded. Since the CNIP’s inception, Česká pojišťovna a.s. has been the lead co-insurer under an agreement among insurers participating in the pool. The CNIP’s executive body is the CNIP Office, which is part of the Nuclear Pool and Facultative Reinsurance Department within Česká pojišťovna’s organisational structure.

Human Resources

At the end of 2015, employees numbered 3,851, of whom 3,610 were full-time contracted employees and 241 were hired under “agreements on the performance of work” or “agreements on work activities”.

The Company annually refines its core appraisal principles, consisting of an emphasis on positive motivation and the identification and exploitation of the strengths of individuals. The employee development and remuneration systems are linked to the employee appraisal system. Top-rated employees benefit from the most systemic development support.

In employee development, Česká pojišťovna concentrates on strengthening expertise and fostering insurance know-how. We are expanding the involvement of internal trainers in employee training in line with the principle of a self-learning organisation. We are forging ahead with afternoon workshops and with the Insurance Academy (Pojišťovácká akademie), which is particularly important for new colleagues. The chief sponsor of the programme is the CFO.

In 2015, we also developed specific programmes for key groups, such as talents, graduates and managers, preparing intensive annual training courses geared towards their professional advancement. Česká pojišťovna makes systematic use of development instruments such as Customer Day (a day spent with a mentor on the line). The prime objectives are to forge strong bonds between back-office teams and the front line, and to nurture teamwork.

In an effort to retain key employees and to prevent the loss of unique know-how, a scheme aimed at identifying, promoting and retaining employees with unique expertise was prepared. Mobility (Mobilita), a programme designed to broaden career opportunities within the Company and the Generali Group, also continued in 2015.

Building on the results of an employee poll and in an attempt to improve employee care, we are developing benefits in areas that reflect the key lifestyle needs of our employees. One of these areas is health care, with a stress on disease prevention, physical fitness, mental well-being and healthy eating, all wrapped up in the WE FIT programme.