„RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 BIZTOSÍTÓ Montserrat Black B Montserrat Medium 2020 ANNUAL REPORT CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logó / CIG PANNÓNIA BIZTOSÍTÓ 6 „RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 INSURANCE Montserrat Black B Montserrat Medium CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logó / CIG PANNÓNIA BIZTOSÍTÓ 14 KEY INDICATORS IN 2020 0,660 19,319 billion HUF billion HUF Result after Insurance premium taxation income 335% 13,894 consolidated capital adequacy billion HUF under Solvency II Shareholder’s equity: Key Indicators in 2020 2 „RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 INSURANCE Montserrat Black CONTENTS B Montserrat Medium CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logó / CIG PANNÓNIA BIZTOSÍTÓ 14 Foreword by the Cchief Executives 4 History 6 Information for Shareholders 8 Corporate Governance 14 Life Insurance Products 17 Our Business Goals for the Financial Year 2021 23 I. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated Statement of Comprehensive Income 28 Consolidated statement of financial position 30 Consolidated Changes in Equity 32 Consolidated Statement of Cash Flows 34 Notes to the consolidated financial statements 36 II. CONSOLIDATED BUSINESS REPORT 187 3 „RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 INSURANCE Montserrat Black B Montserrat Medium CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logó / CIG PANNÓNIA BIZTOSÍTÓ 14 dr. Fedák István vezérigazgató Polányi Zoltán vezérigazgató FOREWORD BY THE CHIEF EXECUTIVES A business year has passed, whose events fundamentally changed our lives. Our real or perceived everyday sense of security was fundamentally shaken by the coronavirus, as we were forced to work from home, had to miss meetings with family and friends, had to give up our domestic and foreign holidays, leisure activities. Foreword by the Chief Executives 4 „RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 INSURANCE Montserrat Black B Montserrat Medium Yet we were defi ned by new, human reactions to all these changes and events, with adapting and responding to them in a way fundamentally characterizing human life and its surviving capacities, as we learned to work from home effectively (and trusted in this as an employer), were able to communicate online with our family members (even if they were living next door or in the same street) and -as in the ”good old days”- we again spent CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logóour / CIG PANNÓNIA holiday BIZTOSÍTÓ happily at the Balaton. 14 Signifi cant changes have also taken place in our lives: the ownership structure of our Company has changed, a new management was appointed to lead the Company, a new strategy is under development, the Company’s employees and intermediaries are being built up along new sales and organizational principles (and we could go on with listing these changes), which are on the one hand rational, human responses to past events or happenings, on the other they are in line and support the achievement of our future growth goals, to ensure the achievement of expectations both in terms of sales and a higher-level, prudential operation. We could say, that these days we focus on survival as well, but this would not be true, as in the life of our Company we do not talk about survival, but about something new, a strategic and management culture different from the previous one in many aspects, the signifi cant increase of sales results, and that the CIG Pannonia Group wants to become a major player again not only in the UL products market, but also in other areas of the insurance sector. We are sure that in many-many years people will not talk about the change in CIG Pannonia’s life when they look back at the year 2020, but we are confi dent that our shareholders, our business partners will remember the moment that brought a decisive change in the lives of our companies. Budapest, April 7, 2021 Zoltán Polányi István Fedák dr. CEO CEO Foreword by the Chief Executives 5 „RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 INSURANCE Montserrat Black B Montserrat Medium HISTORY The Insurer was founded at the end of 2007 by well known and acknowledged Hungarian CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logópublic / CIG PANNÓNIA BIZTOSÍTÓfi gures and insurance experts under14 the name of CIG Central European Insurance Company Ltd.; the company started operations in 2008. Since the autumn of 2010, when it was fi rst listed on the stock exchange, the Insurer has operated as CIG Pannónia Life Insurance Plc. The intention of the founders was to create an insurance company—run by Hungarian management, focusing on the Hungarian market and supported and privately fi nanced by recognized and credible Hungarian personalities—which was to become, within a short time, a dominant player in the domestic market. The prevalence of the principle of mutuality was an important element of this, i.e. we wanted our shareholders to become clients, and vice versa. This was the rationale behind the public offering of CIGPANNONIA shares in 2010 and their listing on the Budapest Stock Exchange. Of the Company’s shareholders, more than 97 percent are Hungarian private individuals or Hungarian enterprises. Starting operations in 2011, CIG Pannónia First Hungarian General Insurance Company Ltd. is a non-life subsidiary 100% owned by CIG Pannónia Life Insurance Plc. It focuses on Hungarian small and medium-sized enterprises, state- and municipality-owned institutions, companies, trade chambers, associations and societies. Its Italian cross-border activity, based on its niche market strategy, has resulted in a loss that has also shaken its solvency capital in 2020. Due to the presented strategic goals002C that also affect the future strategic elements of the Group, it is important that the defi ciencies (so-called Italian claims) revealed as a result of the proceedings of the Hungarian Financial Supervisory Authority (HFSA) against EMABIT are fully and sustainably remedied. Together with a review of existing claim reserves and regress reserves, a change in strategy was put in place in order to address the risks that remain unchanged in EMABIT’s Italian claims cases, including a change in the strategy of ongoing and related legal cases. At the operational level, the Group has taken clear steps to enable EMABIT to restart operations. The Company has a direct intention to provide any guarantees that may be required to restart the supervised activities of EMABIT as a subsidiary, with the aim of strengthening sales and strengthening internal lines of defense and capital position. Thus, in addition to the non-life segment and the remaining portfolio, the operational planning also plans to develop and sell new products from 2021 onwards. Our Insurer realizes certain life- insurance services through the activities of Pannonia PI-ETA Tribute Service Ltd., which is another 100% owned subsidiary of CIG Pannónia Life Insurance Plc. This company basically provides funeral-related services to customers who, in their life insurance contracts, applied for the services necessary for their fi nal rest. History 6 „RICH BLACK” CMYK: 70, 50 30, 100 rgb: 0, 0, 0 #000000 „CIG zöld” CMYK: 26, 0, 100, 26 rgb: 154, 170, 33 #9AAA21 INSURANCE Montserrat Black B Montserrat Medium CIG PANNÓNIA / ARCULATI KÉZIKÖNYV / Logó / CIG PANNÓNIA BIZTOSÍTÓ 14 At the end of 2018, the Company established CIG Pannónia Financial Intermediary Ltd. as a subsidiary with the aim of expanding its distribution channels of the insurance activity, thereby increasing the volume of new acquisitions. In 2019, CIG Pannónia Financial Intermediary Ltd. sold insurance with a premium of HUF 443 million, in 2020 HUF 140 million. The Company has closely monitored the intermediary’s activities and repeatedly found, that the insurances brokered by the subsidiary have a signifi cantly higher non-payment rate than the average market value. The high non-payment rate resulted in a high commission write-off, and the additional operational cost level could not be met by the declining coverage, thus the pre-tax result of CIG Pannónia Financial Intermediary Ltd. turned into a loss in the 2019 business year. The loss-making operation continued in 2020, causing a loss of HUF 154 million to the Group. The Company repeatedly assessed the operation, which assessment concluded that even in the long run it is not possible to make the operation of the subsidiary profi table. On this basis the Board of Directors of the Company on 9 September 2020 initiated the liquidation of the subsidiary, which was owned by a qualifi ed majority. In accordance with this decision, CIG Pannónia Financial Intermediary Ltd. decided to initiate the liquidation at its general meeting held on 30 September 2020. The commencement date of the liquidation was 1 January 2021. By initiating the liquidation, through strict monitoring and increased customer interaction the Group intends to ensure both the aspects of the insurance profession and the need for shareholder value preservation. Also at the end of 2018, the CIG Pannónia Employee Stock Ownership Plan Organization (MRP Organization) was founded as a legal entity serving to implement the Company’s remuneration guidelines. The aim is that by ensuring their interest, the employees, who are covered by the MRP and have special importance with respect to the Group’s ability to generate income, contribute increasingly to the successful and effective operation of the Group.