PZU paid out a zł.12.75 billion dividend last week Courtesy of PZU

Polish insurer PZU paid out the largest dividend in the history of Poland’s capitalist economy last week. The total payout amounted to zł.12.75 billion (approximately E3 billion), much of which will go to Dutch insurance holding company Eureko BV.

The dividend payout to Eureko is part of an October agreement with the State Treasury to end a decade-long ownership struggle over PZU. According to the settlement, Eureko will gradually reduce its stake in PZU and will terminate an arbitration case against Poland in exchange for zł.4.77 billion in compensation.

A 1999 agreement obligated the state to hand over control of PZU, but successive governments resisted letting go of the highly profitable firm. The conflict led to a number of high-profile European court cases in which Eureko consistently came out on top. It had demanded as much as zł.35 billion in damages.

Now, as Eureko’s stake shrinks, The state’s control over PZU will grow, making it more likely that Treasury Minister Aleksander Grad will realize his plans to float it on the stock exchange by the end of 2010.

Impressive Q3

Source: PZU

Marcin Z Broda, vice president of insurance sector consultancy Ogma, explained PZU’s large profits as the result of the sound investment of over zł.50 billion in accumulated capital. “PZU has become a giant money-box, which mainly earns on what it has,” he told Puls Biznesu.

Indeed, net income on investments amounted to around zł.2.6 billion, a y/y increase of 219 percent.

The results make it highly probable that PZU will reach the 2009 profit target of zł.4 billion set by CEO Andrzej Klesyk.

Can it last?

Whether the insurer can sustain such large profits is another question. The group’s income from premiums fell by 21 percent y/y, while PZU SA’s compensation payouts rose by 12.9 percent over the same period. This suggests that PZU’s core business may not be performing as well as its investment arm.

Mr Broda was also doubtful that PZU’s investments could continue to bring in such bumper profits.

“Many of these [investments from accumulated capital] stem from one-off events which will be difficult to repeat next year,” he warned.