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Interview of the week


Tomasz CZALBOWSKI, Vice President of the Management Board, POLISH Re

POLISH Re has a strong position among the largest exporters of financial services in Poland. In 2007, for the first time in its 12 year history, more than half of the company’s written premium came from its operations outside Poland (53.4 per cent) and its value exceeded EUR 75 million. We are discussing about the achievements and future intentions of the reinsurer with Tomasz CZALBOWSKI, Vice President of the Management Board and Jacek KUGACZ, Executive Director.

XPRIMM: You have been awarded for two consecutive years the most dynamic evolution in Eastern Europe. How did the business evolve over this period?
We proved that you were right by assigning this award, because Romania, along with Russia, was the country where we became the most successful. In these countries business grew significantly and we used that as a marketing tool. This aspect was noted by the market and, obviously, we are eager to continue providing the best services and constantly improve them to prove that we deserve this award.

XPRIMM: How do you see the results of POLISH Re in the CEE in the first semester of 2008?
We followed the pattern of development of the previous year in terms of written premiums. Underwriting results are according to the plan and capital position of the company is very good. At the same time, we were affected by turbulences of the financial market, the strengthening tendency of the Polish zloty that somehow affected our results in the first six months.
Generally speaking, compared to the previous year, our evolution was stable and the growth reached 10%, although it's difficult to compare because some treaties are still in progress and on the different stages. Last year we had two standards: financial statements (according to the Polish accounting system) and international finance reporting system, so the level of premiums depends on your calculation methods.
I just want to point out that, despite the tendencies of strengthening of the Polish zloty (that affected us as exporters of financial services) and other market turbulences our evolution was stable and up by 10% in comparison with the similar period of the last year. More or less, this is also due to our conservative approach to risks as well as a consequence of the fact that we were not so much affected as other companies were.

Executive Director
XPRIMM: How is the relation with the Romanian insurance companies for the moment? How is your business in Romania?
Romania is among the few countries where we have a significant role on the market. On the other hand, we noticed that, in Romania, the same tendencies are present like in many others countries; international groups are coming in, buying companies, like GROUPAMA recently and others that previously entered the market. So, this could affect our relations, but we will continue our efforts to be accepted as security for the international groups. This is already situation in some cases.

XPRIMM: Do you negotiate your contracts with each company from the international groups or directly with the groups?
In case we are accepted by a group, the acceptance is at group level and then all the companies know that they can use our services or, in some cases, it is just a group program like most of these international entities have.
This is extremely important, because the tendencies of activity of the international groups are not only in Romania or Poland but also in other countries like Ukraine, Russia and other markets were we are present on, so we have to focus on that.

XPRIMM: Which are the key factors that helped you achieve such good results on the Romanian market? Which are your advantages against the competition?
For sure it was the excellence of our services and individual approach for all the customers; we are an efficient reinsurer based in Warsaw so we have lower fixed costs, compared to western companies, and have no minimum premium requirements. One can say that each and every client is important for us.
At the same time, we are closer to the clients, to the market, we provide the best services and we are also involved in organizing different events like technical seminars. For example, the last one we have organized was at the beginning of September and the main topic was general third party liability. Also, we intend to organize another technical seminar in Kiev, until the end of this year. We try to provide our clients with the latest know-how and expertise and sharing our experience.

XPRIMM: Besides Romania, which are your strategic markets?
All markets of the CEE countries are very important to us, but obviously there are differences between these markets, regarding the number of companies, structure etc.
For example, two years ago our number of clients in Russia and in other CIS countries was 58 and this year it is more than 90. So, diversity is the key factor these days, as this also shows certain credibility for the clients as well as for the insurance companies and brokers, it shows how POLISH RE is seen on these markets.
Our presence on a market depends on the number of our clients and size of the specific market, but we want to be a strategic partner for all countries of CEE, South Europe and CIS.

XPRIMM: You have to "fight" then with the tendencies of market concentration - many companies are merging, being bought by international groups and probably it's much harder to work with one big client...
That is correct, but we have closely analyzed the evolution of the market, and we have managed to convince our clients a few years ago. Companies that belong to international groups are pushing their parent companies to include POLISH Re, as a security, despite the fact that we don't fulfill their criteria of "A-".
It's very important that local companies are really supporting us; without their support we wouldn't be accepted by the groups.
So, we are accepted by some companies, some international groups, but we still have to work on that. Obviously, this is the tendency and we have to find the solutions, we will certainly manage to achieve our objectives, and the upgrade of POLISH Re's rating will be very helpful.

XPRIMM: What are the relations with the Ukrainian insurance companies? They were used to reinsure their risk mostly on the Russian market. Was it difficult to convince them to work with POLISH Re?
In my opinion, we are seen by the Ukrainian players as a western reinsurer, but first of all, we are seen as local partner. They can communicate with us in Russian, we know the market and we have been working in Ukraine since the very beginning, in 1997. Also, we used to be the shareholder of local company (Skide-West) that became PZU Ukraine some time ago. We proved that our interest in Ukraine is strategically important and we have a good competitive position here and on other CEE markets.

XPRIMM: In terms of business, does the Ukrainian market nowadays give you more business than the Romanian one?
Generally speaking, Romania, Russia and Baltic States are the most important from premium volume point of view; Ukraine is among the TOP-7. I would like to underline that last year for the first time ever, the premium volume from abroad was higher than the premium from the domestic market, and amounted more than 53%. The gross written premium volume for last year was EUR 75 million; from Poland that was EUR 35 million, while the rest was achieved abroad. What is important is the fact that Polish market also increased last year by 10%, but a much higher increase was seen on foreign markets. So, our tendency is to expand and to develop on the foreign markets, which have a high potential. We need to expand further our client-base, especially in the light of our new potential shareholder, that will permit us to develop new lines of business.

XPRIMM: What about Russia, is there a strong competition? They do have some important domestic players...
Yes, it is, but I wouldn't say that the Russian reinsurance companies are playing a very important role. A much more important role, in terms of inward reinsurance, is played by local insurance companies. Obviously, the competition there is quite big, especially now. We have to compete with big local companies, especially because there internal reinsurance is very developed; the companies are reinsuring the risks between themselves. So this is a factor that is taken into account when they are placing the risks. Potential competitors are SCOR, HANNOVER Re, SWISS Re, as well as major local insurance companies, depending on treaties and limits.

XPRIMM: What can you tell us about your new potential shareholder?
The transaction has started; our company has a status of public company but is not listed on the Stock Exchange. We tried to list it but due to the weakness of the financial market and the fact that the company did not achieve a satisfactory issue price we abandoned this process. FAIRFAX decided to make a public offer (call) to acquire up to 100% of the POLISH Re and the transaction just started. I can tell you that the expected value of the transaction is about USD 72 million. According to the announcement Fairfax has received so far commitments to tender to the offer from shareholders holding approximately 47% of the shares of Polish Re.

XPRIMM: Do you think this is a good thing for the company?
Yes, we are very glad that we could be in this very reputable and strong, well-known financial group. We discussed with our rating agencies and it seems that after completing the transaction there could be moves towards an upgrade, which is very important for the future development of the business.

XPRIMM: Do you think that FAIRFAX will continue the same strategy of expansion on CEE markets?
Yes, for sure, they see POLISH Re as a long-term solid platform to expand in this part of the world.

XPRIMM: What are the goals for the next period?
We want to follow the path of development that we have today; we also have to discuss with new shareholder about its intentions, probably it will occur at the beginning of next year. We will be still focusing on business quality and profits from our core underwriting activity.
In 2008 we hope we will be up by 10% in gross written premiums; after that, it will depend on FAIRFAX which we believe is focused more on quality and profit than on an increase in premiums. Also, we expect a certain upgrade in ratings. This will help us run the business well; it will also be a good sign for international groups, for the clients and brokers that we are moving in the right direction at the moment.
We were assigned four years ago with a "BBB-" rating by S&P, outlook "stable", and after four years we are at the same level. Recently, when the information about FAIRFAX was made public, we were put by S&P credit watch positive, which is the first step to make the change of outlook and then to upgrade the company's rating. We are on a good path, and in the Monte Carlo the news were accepted with great pleasure by brokers and our partners. Fairfax is known of doing very good investments also during tough times of turmoil on the financial markets world-wide as nowadays. For sure, this acquisition of POLISH Re will reinforce our position as the leading reinsurer in the Central and Eastern European Countries.

XPRIMM: Thank you!

Editor: Oleg DORONCEANU | Published on 13.11.2008

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