Looking for Opportunities

Wbj Observer sat down with Andrzej Klesyk, CEO of the biggest insurance company in the CEE region. He talked about his unusual past, how secretive his negotiations with Eureko were and what his plans for the future are Interview by Jacek Ciesnowski WBJ Observer: You had a rather unique professional start. Andrzej Klesyk: I studied free-market economy in the 1980s and I knew that I wouldn’t find a job in my field, as there was no such thing as a free-market economy under communist rule. I had two choices, either become a taxi driver or professional dancer. I chose the latter. My wife was my dance partner, we won many competitions and we were teaching classes as well. So how come you ended up in business after all? Then, 1989 happened and we finally got to build a free-market economy in Poland. I started working at the Ministry of Finance thanks to Lesław Paga (economist, co-founder of the Warsaw Stock Exchange), whom I had met at university. Together we were working on the founding of the Securities Commission (now the Financial Supervision Authority – KNF). I’m sure that many people curse me to this day, because I co-created the first exam for stock brokers, which I think no one passed and I’m sure I wouldn’t pass it today either. When you became the CEO of PZU you had a very difficult task, resolve the conflict the insurer and the State Treasury had with Eureko. I met with then Treasury Minister Aleksander Grad who complained to me that both sides can’t reach an agreement and are very far from it. We discussed how we can change it and somehow resolve the issue. I decided that the best way would be to involve Rabobank (Eureko’s shareholder) in the negotiating process. I met with its CEO in Davos and that’s how negotiations started. Although, during the whole process, our (PZU) involvement was top secret. Even official documents published at the time by the ministry did not have my signatures. Originals had them, but versions released to the public had them removed. You’re known for having used very original methods of communication. I heard that, in order to explain your idea and calculations to the other side, you used napkins at one point. Yes, we had to use some tools which are not common in the digital age, like faxes for example. Minister Grad told me that we can’t have anything in writing, which I thought was weird back then, but now I know it was a good decision. We wanted to write the whole thing on paper, but only after both sides reached an agreement. That was understandable, both sides were involved in a legal battle. Every piece of paper could be used in court. That was a very interesting process. After both sides reached an agreement we had to pass the details to the lawyers so they could weigh in. But how to do it if you can’t write anything down? Since I was the only one who had an overview of everything, I arranged a meeting between both sides and their lawyers. On one side was Minister Grad and his lawyers and advisors and on the other side was an eight-person team representing Eureko. I was in the middle and was working out the details as an uncommitted intermediary. The lawyers would write down the information only after both sides nodded in agreement on an issue. Let’s move to the present time. PZU is the biggest insurer in Poland, with 30-40 percent market share depending on the type of insurance. There is little room to grow, especially with the various anti-monopoly regulations which prohibit anyone from getting too big of a share of the sector. Is this why you’ve decided to branch out into health care? We’ve decided to split our business into three pillars. We want to maintain and even increase our position in the insurance sector. The second one is asset management, our investment fund (PZU TFI) is already one of the biggest such funds in our region. Such businesses are a logical step for many insurance companies. The third one, and it’s a new one, is health care. It’s a huge sector that is in dire need of changes. In its current shape, the sector will not be able to sustain itself. Nearly 50 percent of adults in Poland are insured in PZU, giving us a huge advantage over the competition. There is huge potential for synergy. The company has very ambitious plans. By 2020, PZU wants to have PLN 650 million in revenue from its health care services. The sector leader, Lux Med currently has some PLN 700 million in revenue, but it has been building its position for over 20 years and you want to achieve a similar result in only five. When someone asks me if this is possible, I always bring up my time at Inteligo bank, which was one of the first internet banks in Poland. Back then, there were around 20,000 Poles using the internet for banking. I was saying that within 12 months we will get over 100,000 new customers. Everyone was calling me insane, but after a year, we gained 160,000 clients, while mBank had another 120,000 customers. Together, we created the market. The same thing will happen here, I hope. But the health care market is not new and according to market researcher PMR, it is already saturated. It won’t be easy for a new company to enter it, let alone become one of the biggest providers in just five years. The difference between a company like PZU and, for example, Lux Med is that the latter with its PLN 700,000 million revenue doesn’t even get 1 percent of the money Poles spend on health care each year (which is around PLN 100 billion). So, with all due respect it’s a marginal market share. I don’t want to take away their share, I want to create a new one. Which is what exactly? I’ve told my team, that they have the right to experiment, so we’ll see which ideas will become popular and [caption id="attachment_78430" align="alignright" width="300"] Image: Executive Club[/caption] which won’t. For example, a few years ago, when the drug reimbursement was a hot topic, we came up with the idea for an insurance which would protect you from the increasing price of medicine. I was sure that this would be a huge success. It wasn’t. But my employers decided to tinker with the idea and we implemented a product called “antybiotyk,” which works in a very simple way – if a doctor prescribes you an antibiotic, we will reimburse you 80 percent of its price. It’s a huge hit. PZU is the biggest insurer, not only in Poland, but in the whole CEE region. But except for Poland you’re mostly present in small markets such as the Baltics. Do you have any plans for further international expansion in countries with larger internal markets? I’d very much like that, but the problem is that we’re a few years behind when it comes to privatization. Our peers in Hungary or the Czech Republic have already been sold and my predecessors did not use such opportunities back than to purchase a stake in the insurance market. Now it’s too late. You recently had the opportunity to acquire Croatia Osiguranje, which was being sold by the Croatian treasury in 2013. Yes, but our final competitor outbid us by 30 percent. Although, I can hardly call them a competitor, because Adris Group, which bought Croatia Osiguranje, deals in the tourism and tobacco sectors and it decided to try its luck in the insurance business. Privatization is one thing. On the other hand, in the Baltics you have acquired companies from the private sector. Today, no one wants to leave the insurance market. The RSA (from which PZU bought businesses in the Baltics and in Poland) had some problems, they changed their management and a rare opportunity had presented itself. We’re waiting for others, but this could take a while. We have enough capital, a few billion złotys to spend on acquisitions, so money is not a problem for us. What about banks then? Whenever someone in Poland announces that it wants to sell a bank, you are always saying “we’ll look into this” and that’s the end of it. The banking sector is very interesting, but in our strategy there is no place for a bank. There’s no insurer in the world who profited from owning a bank. This applies the other way around as well. There’s no synergy between those sectors. Still, as a company which has a significant amount of money, we could act as a market consolidator. We can invest our capital in a bank, wait a while and sell it for profit, we’re not looking into having a PZU Bank. Aren’t you afraid that as a state-controlled company you might be forced into buying a bank? After all, there is strong sentiment in Polish politics to have more banks controlled by Polish entities. A shareholder cannot force a company into doing something. The Treasury has a 35 percent stake in the company. There are many intelligent people on our board. Currently, our shares are valued very high, we’re among the biggest insurers in the world, when it comes to price-to-book value. And if anyone acted in a way that would be economically hurtful to PZU, its shares would plummet and so would its value. Would it be something that the Treasury would want to happen? I think that (the current) Minister Włodzimierz Karpiński and his advisors are very intelligent people. It all sounds logical, but please remember when the CEO of another state-run company – PGE, Krzysztof Kilian had to resign. He was against the expansion of the Opole power plant, while PM Donald Tusk was for it. Any decision which would be negative for the value of our shares, would not only hurt us and our shareholders, but every other company, that the state has shares in.