On 7 October 2016 a contract was signed according to which the Company acquired 98.97% ownership interest in MKB Life Insurance cPlc. while the Company’s subsidiary, CIG Pannónia First Hungarian General Insurance Ltd. (“EMABIT”) acquired 98.98% ownership interest in MKB General Insurance cPlc from Versicherungskammer Bayern. The acquisition was registered by the Registry Court in case of the Issuer on 18 January 2017 and in case of the Issuer’s subsidiary on 25 January 2017 and thus the CIG Group acquired 98.98% of MKB General Insurance cPlc and 98.97% of MKB Life Insurance cPlc as at 1 January 2017. On 30 June 2017, the Court of Registration of Budapest registered the merge of Pannónia Life Insurance cPlc. (previously: MKB Life Insurance cPlc.) into CIG Pannónia Life Insurance Plc. and the merge of Pannónia General Insurance cPlc. (previously: MKB General Insurance cPlc.) into the CIG Pannónia First Hungarian General Insurance Ltd.

CIG Pannónia Life Insurance Plc. concluded a strategic cooperation agreement with MKB Bank cPlc. (after the transformation of the credit institution into a public limited company and its listing on a regulated market, from 17 June 2019 MKB Bank Plc.) on 11 April 2017. According to the agreement, the two companies conclude a long-term cooperation, the pension and life insurance products of CIG Pannónia was sold in the branches of MKB Bank, while the agents of CIG Pannónia is also selling the products of MKB Bank to the clients. With the strategic cooperation of CIG Pannónia and MKB Bank the already mutually beneficial cooperation between the companies continued to strengthen.

At the beginning of 2018, the Insurer entered into a strategic cooperation agreement with KONZUM Investment and Asset Management Public Limited Company (KONZUM Plc.)[1]. On April 27, 2018, according to the resolution of the General Meeting of 30 January 2018, the Company acquired a 6.56% stake in KONZUM Plc. In addition in an OTC trade the Company purchased 1,368,851 shares at a price of HUF 3,000 each, representing 6.56% of the 20,860,000 KONZUM shares in circulation at that time.

On 25 April 2018 the Central Bank of Hungary has authorized by its decision No. H-EN-II-38/2018. the acquisition of qualified influence of KONZUM Plc. over CIG Pannonia Life Insurance Public Limited Company based on direct ownership exceeding the 20% limit and over CIG Pannonia First Hungarian General Insurance Public Limited Hungary based on indirect ownership exceeding the 20% limit. By the authorized transaction KONZUM Plc. acquired 23,466,020 pieces of dematerialised “A” series ordinary shares issued by the Insurance Company with the face value of HUF 40. -, and with the issue value of HUF 350.-. As a result of the Transaction, the KONZUM Plc. acquired the 24,85 % direct ownership over the Insurance Company. The Court of Registration has passed the resolution number 01-10-045857/370 with the effect of 8 May 2018 on the registration of the increase of the share capital, so the share capital of the Company has been increased to 3,777,130,400 Hungarian Forints and the amount of the shares issued by the Company to 94,428,260 pieces. The private placement of shares was launched on the Budapest Stock Exchange on 21 September 2018.

On 29 November 2018, the Board of Directors of the Company decided to establish the Employee Stock Option Program (hereinafter referred to as “MRP”). The establishment of the MRP took place in order to implement the Remuneration Directives adopted by the Company's General Meeting. Based on the decision of the Board of Directors on April 5, the Company transferred to the CIG Pannonia MRP a total of 374,006 CIG Pannónia ordinary shares held by the Company as non-cash contributions to cover performance rewards through the MRP. Following the transfer of shares, the Company did not hold CIG Pannónia shares anymore.

The Annual General Meeting of the Company held on April 17, 2019 with decree of 8/2019. (04.17.) decided to reduce the share capital of the Company, as a result of which the share capital decreased from HUF 3,777,130,400 to HUF 3,116,132,580. The Company implemented the capital reduction by reducing the nominal value of the registered “A” series ordinary registered shares (94,428,260 pieces) of HUF 40 in the amount of 33 HUF per share, the way of carrying out the reduction was to reduce the nominal value of the shares. This change was subject to the Company Court Registry with decision of Cg.01-10-045857 / 395. The share exchange date was September 26, 2019. The capital reduction represented 17.5 percent of the Company's equity as of December 31, 2018, based on which the total amount of the capital injection’s payment was HUF 3 billion, HUF 31.96 per share. The Company fulfilled the payment in September 2019.

"EMABIT" has provided suretyship insurance for registered companies and individuals in Italy since 2014 with BONDSOL Kft. as its sole agent. As of 31 December 2019, these commitments – when suming up the limits by contracts – resulted in an exposure slightly above EUR 383 million, against 3,598 contractual customers and 494 beneficiaries. Most of the beneficiaries were certain entities of the Italian State (agencies, municipalities, etc.).

In the case of the above-mentioned insurances, at the end of 2018 and in early 2019 the agency responsible for the supervision of gambling in Italy (hereinafter: Beneficiary 1) has submitted a request for drawdown of insurance promissory notes (related to products Gaming and Public Concessions) issued to four large clients. The total value of the contractual obligations was approx. EUR 12 million. However, these drawbacks did not provide adequate justification and the primary opinion of Italian experts was that the claim lacks legal basis. During the conciliation negotiations in 2019, Beneficiary 1 reduced its claim to almost one quarter of the original amount and provided adequate justification for this remaining amount. EMABIT settled the claim  of EUR 3.167 million by the end of November 2019.

In parallel with the above claims settlement process it became evident, that, with regard to Italian suretyship insurance activities, EMABIT’s reinsurance contract was a forgery and thus EMABIT’s entire respective exposure lacked reinsurance. The reinsurance contract between EMABIT and Africa RE was brokered with the intermediation of a Lloyds broker in 2015 through a broker licensed in Switzerland, with subsequent reinsurance financial settlements (reinsurance premium, reinsurance reimbursement, etc.) all settled through the intermediary . To clarify the existence of the cover, EMABIT contacted Africa RE directly. In a letter dated 16 September 2019, Africa RE informed EMABIT that it had no contact with the intermediaries represented in the submitted documents, that the cover assurance documents were a forgery, and that they did not originate from Africa RE.

As a result, EMABIT was left without reinsurance coverage for an exposure of EUR 379 million (about HUF 125 billion) with respect to the Italian business line, of which it had previously assumed an approx. 95-99% quota share coverage through the Africa RE contract. The exposure to this presumably non-reinsured portfolio decreased to EUR 256 million by the end of 2019. EMABIT filed a demand for the prosecution of the reinsurance brokers involved in concluding the contract and reported the fraud to the respective courts. Legal proceedings have been ongoing since.

In addition to the claims related to the gaming concessions, another significant claim has been received by EMABIT. In the fourth quarter of 2019, Beneficiary 1 claimed damage to bonds issued by EMABIT, related to the excise duty debt of a fuel trading company. The claims for the two EUR 5 million bonds in subject amount to EUR 10 million in total. After investigating the circumstances of the claim, EMABIT declined to launch claim payments, filed a demand for prosecution on fraudulent contracts, and sought legal redress from the courts for Beneficiary 1 initiating the claim payment, then brought an action for the annulment of the contract.

Related to the events described, the Hungarian National Bank (“MNB” or the Hungarian Financial Supervising Authority, “HFSA”), as part of another targeted investigation, applied temporary measures to EMABIT on 22 October 2019. For a maximum period of one year, MNB prohibited EMABIT in its Italian cross-border activity to enter into new insurance contracts in the guarantee sector and to extend its existing contracts there. Also, MNB obligated EMABIT to immediately launch prudent and reliable risk management and control measures regarding its insurance business, not endangering EMABIT’s financial position.

These two above events had a significant negative impact on the subsidiary’s solvency capital  in 2019. On 5 November 2019, EMABIT notified HFSA, pursuant to Section 267 (1) (c) of Act LXXXVIII of 2014 on Insurance Activities, that the Company's solvency adequacy fell to 102% of the required rate, and that there was a risk that during the next three months it will fall below the statutory level. As a result of the events, HFSA obliged EMABIT to submit a financial recovery plan (“Recovery Plan”) to HFSA for approval by 4 January 2020 at the latest. The primary objective of the Recovery Plan was for the Company to present specific measures which ensure that the Company's Solvency Capital Requirement (SCR) exceeds 100%, with respect to the guidelines of Section 309 (2) of the Act on Insurance Activities.

EMABIT prepared the Recovery Plan by the due date, detailing the events related to the Italian Business Line, and analyzing the company's historical activities. EMABIT then presented the various potential measures available to restore solvency adequacy, as well as their advantages and disadvantages. In addition to these possible alternatives, the Recovery Plan outlined the specific steps of the action plan adopted by the Board of Directors, which aim to address the legal situation in Italy and to repair the damages through a 12-point action plan, and also help to raise its capital adequacy to the expected level.

The HFSA with its resolution No. H-JÉ-II-39/2020 from 1 July 2020 approved EMABIT recovery plan with the condition of an additional capital requirement for the subsidiary with an amount of HUF 500 million. As a result of all these recovery measures, EMABIT's solvency capital adequacy has been restored by increasing to 147% by 30 June 2020, including the additional capital requirement.

In connection with the guarantee contracts, in the second quarter of 2020 another claim from an Italian authority (hereinafter: Beneficiary 2) was filed for EUR 5 million in bonds. The insurer found that the claim was outside the maturity of the policy and that the deadline had not been extended by the rules laid down for the Italian COVID situation, and therefore rejected the claim. Beneficiary 2’s contrary decision was challenged by EMABIT in an Italian court.

On 7 September 2020 the HFSA with its resolutions No. H-EN-15/2020 lifted the ban imposed on EMABIT regarding conclusion of new insurance contracts and the extension of existing contracts in all cultivated sectors in Hungary with a view to restoring the capital adequacy, while for its cross-border activities in Italy decided to maintain the restrictions for another year.

The Company's Board of Directors asked Dr. István János Fedák (the MNB authorized the employment of Dr. István János Fedák as the primary CEO with decision No. H-EN-II-89/2020) to handle the prevailing risks in EMABIT's Italian claims and to change the strategy for ongoing and related legal matters. In connection with the change of strategy, the review of existing claim reserves and regress reserves has been finished and is ongoing since.

Table 1: Key indicators of CIG EMABIT's exposures in Italy by product type as at 31 December 2022

Exposures from Italian guarantee products have decreased from EUR 30 million at the end of 2021 to EUR 20 million at the end of 2022.

Pursuant to the decision of the Board of Directors of 7 April 2020 EMABIT sold its casco, Hungarian property and liability, Hungarian compulsory third party insurance and the Hungarian goods in transit and road liability insurance branches within the framework of a portfolio transfer. The portfolio exceeding 100,000 contracts with a portfolio premium of almost HUF 6 billion was sold within the scope of the subsidiary's own funds recovery plan.

On 3 June 2020 the Board of Directors of EMABIT has decided to sell the Polish carrier's professional liability insurance business to AEGON in the context of a transfer of portfolio. The HFSA approved this on 28 July 2020, with the effect of 1 Aug 2020. Both portfolio transfer have taken place.

In the fourth quarter of 2020 the Group took steps at the operational level to ensure opportunities for the relaunch of operations -parallel to the intent of insuring guarantee elements at the Group-level as required- after EMABIT implemented the provisions of the recovery plan set by the HFSA, and its solvency position has stabilized, with the aim to strengthen its sales, internal defence lines and capital position following the adoption of EMABIT’s strategy. To implement all these objectives, the Company undertook to carry out the necessary capital increases, enabling EMABIT to continue operating in the long term. Thus, in addition to the non-life segment and the remaining portfolios, the operational planning also plans with the development and sale of new products from 2021 onwards.

At the meeting held on June 29, 2020, the Board of Directors of the Company with its resolution No. 47/2020.06.29. decided to increase of the share capital of the Company (hereinafter: Share Capital Increase). The Share Capital Increase was carried out by the Company in such a way that it increased the nominal value of 94,428,260 dematerialized, series “A” ordinary registered voting shares with a nominal value of HUF 33 each, issued by the Company, to HUF 100 per share. With its announcement on 4 August 2020, the Company postponed the share exchange required in connection with the Share Capital Increase. The share exchange was postponed in order (i) to comply fully with the regulation dated on 17 June 2017 (2017/1129) of the European Parliament and the Council and (ii) in view of the fact that the Extraordinary General Meeting of the Company convened on 14 August 2020 intended to decide on the reduction of the Company's share capital.

Subsequently, the General Meeting of the Company decided on 14 August 2020 to reduce the share capital of the Company with its resolution No. 22/2020 (VIII.14) (“Share Capital Reduction”).  As a result, the share capital of the Company decreased from HUF 9,442,826,000 to HUF 3,116,132,580. The share capital reduction was carried out by the Company in such a way as to reduce the nominal value of 94,428,260 dematerialized, series “A” ordinary registered voting shares with a nominal value of HUF 100 each, issued by the Company, to HUF 33 per share. This change was entered in the register of companies by the number Cg.01-10-045857/439. order of the Registry Court of the Metropolitan Court. In view of the registration of the Share Capital Reduction in the meantime, the registration of the Share Capital Increase has become obsolete, so KELER Ltd. will not create registered shares of the “A” series with a nominal value of HUF 100 and issued on the regulated market. However, taking into account the fact that a new series of shares was issued as a result of the Share Capital Decrease, the ISIN identifier of the newly issued series “A” ordinary shares with a nominal value of HUF 33 has changed, therefore the Company has carried out a technical share exchange. The first trading day of the new ordinary shares with a nominal value of HUF 33 (HU0000180112) on the Budapest Stock Exchange was 9 December 2020.

On 27 November 2020, the Board of Directors of the Company amended its dividend policy. According to the Company's new dividend policy, after realistic provisioning -which aims to take advantage of acquisition and non-organic growth opportunities-, dividends should be paid taken into account the Solvency Capital Requirement and the Company's liabilities, financial and management plans; the funds available beyond this and possibly payable as dividends, may be paid as dividends to the stakeholders.

On 22 February 2022, the Company and EMABIT entered into a 20-year framework agreement with MKB Bank Plc. (Registered seat: 1056 Budapest, Váci u. 38.; Reg. no.: 01-10-040952) and Magyar Bankholding Ltd. (1134 Budapest, Kassák Lajos utca 18.; Reg. no.: 01-10-140865). Pursuant to the framework agreement, according to the implementation and timing of its terms, Magyar Bankholding Ltd. undertook to distribute and sell only the products of the CIG Pannónia Group with respect to products belonging to the life and non-life insurance segments through all sales channels of its member banks controlled and managed by a qualified majority, i.e. MKB Bank Plc., Budapest Bank Ltd. and Takarékbank Ltd. (member banks).

The establishment of the framework agreement is expected by the parties to create the long-term conditions for making full use of the synergies inherent in a banking-insurance cooperation, for which the parties have undertaken - specifying the detailed rules, modalities, financial terms, rights and obligations of their cooperation - to establish targeted cooperation agreement(s) in a regulated form and manner. All this is embodied on one hand in the banking product sales activities and the related sales promotion activities, on the other hand in the exclusive insurance sales activity and related sales promotion activity by Magyar Bankholding Ltd. and its member banks. 

The Company signed a similar strategic agreement with Euroleasing Pénzügyi Szolgáltató Zrt, the largest player in the leasing market, in the second quarter of 2022.

With its decision no. H-EN-II-115/2022 dated 13 July 2022 Magyar Nemzeti Bank also authorized that - likewise based on the referred Agreement with BNP Paribas Cardif insurers - BNP Paribas Cardif Életbiztosító Zrt.’s contract portfolio containing all group life insurance contracts (insurance contracts belonging to the risk group of group credit coverage life insurance) and to which the insurance contracts are contracted by MKB Bank Nyrt., as the legal successor of BUDAPEST Hitel- és Fejlesztési Bank Zártkörűen Működő Részvénytársaság, are transfered to CIG Pannónia Életbiztosító Nyrt. with effect of 1 September 2022. Following the transfer of the portfolio, CIG Pannónia Biztosítók will be the insurer of the portfolio of contracts specified in the license of the Magyar Nemzeti Bank, which will be reinsured by BNP Paribas Cardif Biztosítók.