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Group Annual Report



ERGO is one of the major insurance groups in both Germany and Europe. We have a presence in more than 30 countries worldwide, but the focus of our activities is on the European and Asian regions. ERGO provides an extensive range of insurance and pension products, as well as services. In its home market of Germany, ERGO ranks among the leading providers in all segments. Around 46,000 people work for our Group, either as salaried employees or as full-time self-employed sales partners. In 2013, income from premiums totalled € 18 billion and benefits paid out to customers amounted to € 17 billion. Our customers determine our actions. ERGO is strictly geared towards the wishes and needs of its customers, and intends to improve on this still further by pursuing a close dialogue with them. We are implementing our claim “to insure is to understand” by providing advice and products which meet the needs of our customers as well as under-standing and picking up on customers’ personal concerns. This is enhanced by clear and understandable communica-tion, innovative services and swift support in the event of damage or loss.

Our customers can choose for themselves how they prefer to contact ERGO, as we have the appropriate means of contact for everyone: either personally by way of a self-employed sales partner, online or over the phone with direct sales. Brokers and strong partnerships both in Germany and abroad are also on hand for our private and commercial customers alike. The major European bank, UniCredit Group, as well as other banks, has sales partner-ships with us in Germany and in other countries.

ERGO is a member of the Munich Re Group; Munich Re is one of the world’s leading reinsurers and risk carriers. Within the aforementioned group, ERGO is the special-ist in primary insurance, i. e. direct insurance for private and commercial customers in Germany and worldwide. Munich Re’s investments total € 209 billion of which € 126 billion stems from ERGO – these are primarily managed by MEAG, the joint asset and fund manager.

Management Report

Overview of ERGO Insurance Group

2013 2012 1 Change previ-ous year (%)

Total premium income € million 18,132 18,562 − 2.3

Gross premiums written € million 16,770 17,091 − 1.9

Expenses for claims and benefits (gross) € million 16,999 17,562 − 3.2

Investment result € million 4,959 5,268 − 5.9

Operating result € million 732 958 − 23.6

Consolidated result € million 436 290 50.2

Investments € million 126,440 125,400 0.8

Technical provisions (net) € million 124,184 120,884 2.7

Equity € million 4,622 4,572 1.1

Full-time representatives 15,983 17,862 − 10.5

Salaried employees 29,595 29,768 − 0.6



3 Letter by the Chairman of the Board of Management

6 Report of the Supervisory Board on the 2013 financial year

Management Report

10 The ERGO Insurance Group

14 The ERGO Insurance Group – Governing bodies

16 Business environment

18 Business performance

23 Assets and financial position

27 Other success factors

31 Risk report

42 Opportunities report

44 Prospects


Financial Statements

48 Consolidated balance sheet as at 31 December 2013

50 Consolidated income statement for the financial year 2013

51 Statement of recognised income and expense

52 Group statement of changes in equity

54 Consolidated cash flow statement for the financial year 2013

55 Principles of presentation and consolidation

76 Notes to the consolidated balance sheet – assets

97 Notes to the consolidated balance sheet – equity and liabilities

114 Notes to the consolidated income statement

122 Disclosures on risks from insurance contracts and financial


134 Other information

140 List of shareholdings as at 31 December 2013 in accordance with

Section 313 para. 2 of the German Commercial Code (HGB)

152 Auditor’s report



Dear Readers,

you will find once again a detailed report on the past financial year on the following pages. In this letter I would like to give you an initial brief overview and provide you with an over-all picture of our numerous activities.

But first things first. With a consolidated Group result of € 436 million (290 m), ERGO attained a positive result in 2013. At € 18.1 billion (18.6 bn), turnover from premium income was, however, on the decline. The situation in the life insurance segment was difficult in the entire market and we were unable to offset this trend entirely through turnover. On the other hand, the very pleasing consolidated Group result was achieved thanks to con-tributions from all business segments. However, it should be noted that the net income from life insurance under IFRS will be exaggerated as a result of the difference under the German Commercial Code in valuing the additional interest reserve. Overall, we are pleased with the net investment income of € 5.0 billion (5.3 bn). Detailed information on the course of business is provided on pages 18 to 22.

The general climate remains difficult for our business. We are still concerned about the impact of the current period of low interest on our business, in particular life insurance. Although we are certain that we will be able to fulfil all obligations towards our customers for a long time, even if faced with a difficult environment such as this, there is increas-ing pressure to work more cost-effectively and efficiently. At the same time, the Internet has changed the purchasing behaviour of consumers and their expectations in regard to transparency – just like the new technological possibilities change their expectations with regard to speed and efficiency. In the light of this environment, it is our strategy to set new standards with our strict customer focus, thereby distinguishing ourselves from our competitors. In doing so, we consistently pursue our approach which we adopted with our customer promise “to insure is to understand” in 2010.

Over the past few years we have proved with a number of initiatives that we are very seri-ous about our customer promise “to insure is to understand”. We have excluded products which are prone to risks of incorrect advice from our product range,and with the simpli-fication of terms of insurance and our Clear Language Initiative we are pioneers in the industry. Moreover, we have actively integrated our customers in the improvement of processes and products with their presence on the ERGO Customer Advisory Board. We will focus the management of the company more closely on the needs and interests of our customers. We carry out customer surveys on our performance at all important points of

Dr. Torsten Oletzky

Chairman of the Board of Management ERGO Versicherungsgruppe AG

Letter by the Chairman of the

Board of Management


ERGO Insurance Group

Annual Report 2013


contact and are thus able to obtain our customer satisfaction index. The central variable is the willingness of customers to recommend us, the so-called Net Promoter Score. Only those who are really satisfied with our services and performance will recommend us, and that is a very high standard we have set for ourselves.

We will take an important organisational step by pooling all customer-related processes in the applications and processing policies and claims management in a new Customer and Sales Services division in April 2014. This will make many processes leaner and, as a result, more efficient for our customers. Furthermore, with more clarity in formulating our p romise of benefits we intend to contribute towards prevention wrong expectations when policies mature. You will find more information on our services for customers in the section “Customers and customer relationships” of the Chapter “Other success factors”. We will also start reorganising our sales forces in April 2014 by placing them under a joint sales company. The integration of our tied agents in only two instead of hitherto five sales organisations will simplify the application of a homogeneous advisory approach by our sales partners and their technical aids. At the same time, we will reduce the complexity of processes as well as sales costs.

We also succeeded in combining a variety of requirements with our new product genera-tion in the German life insurance segment. In case the low interest rates on the capital markets persist, we will have to adopt new methods and develop new benefit promises, as well as spread risks adequately in order to satisfy our customers in the long term. With ERGO Annuity Guarantee, we introduced a product which offers a perfect balance between security, return on investment and flexibility. Our dynamic investment concept enables us to react to both positive as well as difficult developments on the capital markets while costs are presented transparently. The first sales successes since the launch in 2013 show that we are on the right track. We are currently developing a way to apply this new con-cept to other areas of insurance, such as company pension schemes.

An increasing number of customers opt to ask their insurance agent and use the Internet to cover their insurance needs or make use of services. ERGO Direkt has been an expert in direct marketing for many years. We intend to make use of this expertise more coherently for the Group, and also develop attractive online services for our customers who are referred to us by agents. We have already taken first steps in this direction. The online tariff check provided by our health specialist DKV, for example, is used frequently. Customers are able to compare under what circumstances other tariffs may be suitable for them. This creates transparency and is still unique on the market. Likewise, customers are able to compile and take out a private liability insurance by ERGO Insurance Group online. This service was introduced in 2013.

Letter by the Chairman of the Board of Management


On the international front we continue to expand our business, which, at times, takes a lot of staying power. In India we are setting up a joint venture in the life insurance segment. We are also very pleased with the progress of our joint enterprise HDFC ERGO in the property insurance segment. In China our joint venture in the life insurance business began selling its first policies last Autumn. This market is complex but also offers high growth, and we intend to take advantage of the opportunities it offers. We will continue to look mainly to Eastern Europe and Asia to enter new markets. As was the case in the previous year, the contribution of the international business to the overall result has been very satis factory, which is another reason to concentrate on expanding our international business

I will summarise the numerous other activities in a few keywords. The implementation of legal requirements remains a major issue. Last, for example, we made great efforts to prepare for the implementation of Solvency II and SEPA. We brace ourselves for the demographic changes and work hard to provide our employees with the conditions they need to combine their professional life with their family commitments – for example with the introduction of part-time leadership. Moreover, we provide detailed reports on our activities. In 2013, we published the second issue of our Customer and Sustainability Report.

Let me also mention the people who impressed me most over the past year. Our instant helpers who fought the deluge of water in Southern and Eastern Germany to help the flood victims as swiftly as possible to cope with the devastation and their colleagues in the various departments who went to great lengths to support them. All this was an amazing team effort. I would like to thank them and all other colleagues and sales partners from for their work and effort over the past year. With their commitment, creativity and sheer hard work, they have made the Group’s good progress possible.

This was ERGO in 2013, and I am sure you, too, will be convinced that we take on whatever challenges we are faced with – and find appropriate answers to meet them. I am confident that we will continue to be one step ahead.


ERGO Insurance Group

Annual Report 2013


Dr. Nikolaus von Bomhard

Chairman of the Supervisory Board of ERGO Versicherungsgruppe AG

In the year under review, the Supervisory Board undertook the controlling and advisory functions incumbent upon it with due care in accordance with the law and Articles of Association. Based on detailed and extensive written and verbal reports provided on a regular basis by the Board of Management, the Supervisory Board assisted the Board of Management in an advisory capacity and monitored the Board’s management of activities. The Board of Management briefed us regularly concerning corporate planning, business development, strategic progress and the current situation of the Company. We were closely involved in all decisions concerning the Company and discussed them in detail based on the reports submitted by the Board of Management.

The Supervisory Board convened for three routine meetings during the annual period which were attended by almost all members. In addition, the various committees (Audit Committee, Standing Committee and Board Committee) also met, and the respective chairpersons regularly reported in detail on their work and were available to answer any questions. As decreed by Section 27, Paragraph 3 of the German Co-Determination Act, the Nominating Committee and Conference Committee did not have to meet.

The Board of Management also informed us in between sessions about important trans-actions and significant upcoming decisions. Furthermore, as the Chairman of the Supervisory Board, I was in constant contact with the Chairman of the Board of Management and talked through with him ERGO’s strategy, risk and capital management as well as current business developments.

Main issues

During the balance sheet meeting held on 19 March 2013, the Supervisory Board was given a detailed review of the 2012 financial statement as well as being informed of ERGO’s business development. The Chief Risk Officer also informed us in detail of ERGO’s risk strategy and risk situation. The Supervisory Board ascertained that ERGO’s risk management system has been developed significantly. In addition, the Board of Management reported on the status of the “Future of Sales initiative”, which aims to transfer the sales organisations of the German operating insurance companies to the new ERGO Beratung und Vertrieb AG. As such, we discussed in detail the effects of the project with regard to the expansion of

Report of the Supervisory Board

on the 2013 financial year


the sales organisations, increasing production and the development of market shares as well as the associated risks. We also reported on the completely new generation of life insurance products. We received information about the ERGO Customer Report and the ERGO brand positioning with regard to clarity in customer communication. Finally, we dealt with the suggestion at the Annual General Meeting to change the way the Super-visory Board is remunerated. The previous performance-related pay component has been abolished and higher fixed salaries have been agreed. This means that they will be assured appropriate pay even during periods of financial difficulty, which require a higher amount of effort from the Supervisory Board.

In the meeting on 2 August 2013, the Board of Management presented its ideas for ERGO’s medium-term strategy. By 2018, initiatives based on the ERGO mission statement are to be implemented in eight strategic areas of action. The Board of Management also informed us of its plans to create a new Divisional Board known as “Customer and Sales Services” which will pool all the incoming, operational, benefits and claims processing procedures that were previously spread across five different divisions. The Board of Management and Supervisory Board were also engaged in an in-depth discussion of the strategy for the future. In addition, during this meeting the Board of Management also informed us in detail of the life insurance segment, particularly with regard to the status of the launch of the new product line in the sales organisations and on the market. We reviewed the Director of Industrial Relations’ Staff Report too.

In the meeting on 3 December 2013, we received in-depth information on the progress of the Company strategy from the Board of Management. We were made aware that the management and responsible works council committees have agreed on a key issues paper for the implementation of the initiatives in the new strategy, including structural changes and cost-saving measures. In this meeting, the Supervisory Board resolved to endorse the new ERGO architecture with the creation of a separate “Customer and Sales Services” Division and the associated initiatives planned by the Group. As such, an adapted version of the business organisational chart was approved for the Board of Management, valid as from 1 April 2014. In addition, we considered the report by the Board of Management regarding the development and risk exposure of ERGO’s investments. We also approved a change in the Company’s statute with regard to the Board of Management and the redrafting of the Company’s statute for the Risk Committee, a Board of Management committee. Besides decisions made regarding the appointment of a new member of the Board of Management and to extend appointments that were due to expire, including the appointment of the Chairman of the Board of Management, we addressed the topic of remuneration for the members of the Board of Management during the reporting period. As such, the plenum established the amount of variable remuneration to be paid out based on the annual performance in the 2012 financial year and for the 2010 mid-term incentive plan. Moreover, the threshold levels and goals for variable remuneration were established for the 2014 financial year.


ERGO Insurance Group

Annual Report 2013


Corporate Governance

The ERGO Supervisory Board sets great store by excellent corporate governance. As in previous years, we once again examined the efficiency of our operations. We ascertained that the activities of the Supervisory Board are organised in an appropriate and efficient way. Comments and suggestions for improvements were picked up on in detail.

Company and Group financial statements

KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft, an auditing and tax advisory company in Munich, audited the annual financial statements prepared by the Board of Management, including the management report and the consolidated financial statements, including the Group management report, for the 2013 financial year, and awarded them an unqualified auditor’s opinion.

At a meeting held on 10 March 2014, the Supervisory Board’s Audit Committee discussed these documents at length, having examined them in advance. We then discussed in detail the annual financial statements and the consolidated financial statements, the management report and the Group management report along with the reports by the external auditor at the balance sheet meeting, during which the representatives of the auditing company were also present and made a statement. We had no objections. We approved the 2013 annual financial statements and consolidated financial statements, which have now been endorsed. We reviewed the Board of Management’s proposal for the appropriation of earnings and have approved it.

Changes to the Board of Management

The Supervisory Board appointed Ms Silke Lautenschläger as a member of the Board of Management effective 1 January 2014. Ms Lautenschläger will be responsible for the recently created “Customer and Sales Services” Division as of 1 April 2014.

Our gratitude to the Board of Management and staff

We would like to thank the members of the Board of Management and all ERGO employees, as well as the teams working for companies in the ERGO Insurance Group for their commitment and the successes achieved in the annual period.

Düsseldorf, 27 March 2014

On behalf of the Supervisory Board

Dr. Nikolaus von Bomhard,

Chairman of the Supervisory Board of ERGO Versicherungsgruppe AG

Report of the Supervisory Board on the 2013 financial year


ERGO Insurance Group

Annual Report 2013


ERGO is one of the major insurance groups in both Germany and Europe. It has an active presence in more than 30 countries worldwide, and focuses its business in Europe and Asia. ERGO provides an extensive range of insurance and pension products, as well as services. In its home market of Germany, ERGO ranks among the leading provid-ers in all segments. Around 46,000 people work as salaried employees or as full-time self-employed sales partners for our Group. In 2013, income from premiums totalled € 18 billion and benefits paid out to customers amounted to € 17 billion.

Our customers determine our actions. ERGO is strictly geared towards the wishes and needs of its customers, and intends to improve this still further by pursuing a close dialogue with them. Our claim “To insure is to understand” is rigorously pursued by means of needs-based advice and products geared to customers’ requirements, which understand and focus on customers’ personal issues and in clear and easy-to-understand communication, innovative services and fast support in the event of damage or loss. Our customers can choose for themselves how they prefer to contact ERGO. We have the appropriate means of contact for everyone: either personally by way of a self-employed sales partner, online or over the phone with direct sales. Brokers and strong partnerships both in Germany and abroad are also on hand for our private and commercial customers alike. The major European bank, UniCredit Group, as well as other banks have sales partner-ships with us in Germany and in other countries.

ERGO is a member of the Munich Re Group; Munich Re is one of the leading global reinsurers and risk carriers. Within the aforementioned group, ERGO is the special-ist in primary insurance, i. e. direct insurance for private and commercial customers in Germany and worldwide. Munich Re’s investments total € 209 billion of which € 126 billion stems from ERGO – these are primarily managed by MEAG, the joint asset and fund manager.

ERGO is an integral part of Munich Re and, as such, is integrated in the key processes of the Group in terms of regulatory and company law requirements, for example in Group strategy and business policy, capital and finance planning, risk management, controlling, reporting and accounting or generally concerning all major legal trans-actions and measures. A controlling agreement between MunichFinancialGroup GmbH – a subsidiary of Münchener Ruckversicherung AG – and ERGO Versicherungsgruppe AG has been in place since 2012. A Group guideline stipulates the responsibilities and areas of authority between the group management of Munich Re and ERGO in matters of extreme importance.

The consolidated management report summaries the business activities of the ERGO Group. A general overview of the development of ERGO is on pages 18–22, including a detailed report on the various segments, including life insurance (Germany), health insurance, property-casualty insurance (Germany), direct sales, travel insurance and international operations.

Our brand strategy

Life insurance as well as property-casualty insurance are marketed under the ERGO brand, and are supplemented by additional special brands, notably DKV for health insurance, D.A.S. for legal protection insurance and ERV for travel insurance. We are globally active with all the afore-mentioned brands with the exception of health insurance. In Germany, there is also ERGO Direkt which is solely involved in direct sales, whether online, by letter or over the phone.

Our brand strategy communicates a clear promise to our customers: “To insure is to understand.” This promise represents a consistent approach that takes customers’ requirements into account in all areas of business. It consists of needs-based advice which understands and picks up on the customers’ concerns along with clear and easy-to-understand communication, innovative services and swift support in the event of loss or damage. For more information on our services for customers, please refer to the section “Customer and customer relationship” section in the chapter on “Other Success Factors”.

Management Report

The ERGO Insurance Group


The ERGO Customer Report describes how we implement our promises to the customer. It is published annually and the second issue appeared in May 2013 focussing on “Advice”. Interviews are conducted by customers who put their questions to persons in charge at ERGO. The answers illustrate clearly where we currently stand, what is good and what we need to improve on.

Focussing on the customer, combined with the size and financial strength of our Group, make us a reliable long-term partner.

Our management style and objectives

Our Company is managed strictly with the customer, service and profitability in mind. The focus here is on integrated management of the segments and their administrative processes, modern risk management com-prising asset liability management, as well as value-based and risk-based management of all business activities. Our activities include various business models, providing all types of life, annuity and health cover and virtually all aspects of property-casualty insurance, as well as legal protection cover.

ERGO will gear management even more closely to customer requirements in the future. As from 1 April 2014, ERGO will pool all customer-based back-office as well as benefit / claims functions, including applications and processing policies in a new “Customer and Sales Services” division.

At the same time, we will steer domestic life and health insurance from a joint division known as “Personal Lines Insurance”.

Value-based management

Our objective is to analyse risks from every conceivable angle and to assess and diversify them, thereby creating lasting value for shareholders, customers and staff. The guiding principle of our entrepreneurial thinking and activ-ity is to increase the value of our company on a lasting basis, which also includes our active capital management. The main features of our approach in practice are the con-sistent application of value-based management systems,

which we constantly refine. Economic earnings are instru-mental to the question of whether or not we have created value over a given period. They consider, for example, the costs of the relevant risk capital, as well as the long-term nature of the company. They are equivalent to the change to the economic equity over a specified period of time. The framework for any business activity is our risk strategy, derived from the business strategy, from which we also extract a detailed network of limitations and reporting thresholds. Besides value-based parameters, we observe a range of significant additional conditions in managing our business. These include rules of local accounting sys-tems, tax aspects, liquidity requirements and regulatory parameters.

Our value-based management is characterised by the following aspects:

• We assess business activities not only according to their earnings potential but also relative to the extent of the risks assumed which is decisive in measuring added value as well. This is why we have implemented high quality standards for underwriting, pricing, cumulative controls and claims management. Only the risk-return relationship reveals how beneficial an activity is from the shareholders’ point of view.

• With value-based performance indicators, we ensure the economic view and the necessary comparability of alternative initiatives and prioritise these.

• Strategy and operational planning are closely linked with one another.

Property-casualty insurance:

combined ratio and economic earnings

Across property-casualty insurance and other segments, which are by and large distinguished by their short-term business nature, we largely consider two factors: combined ratio and economic earnings.

The combined ratio describes the percentage relationship between the sum of claims expenditure (net) and operat-ing expenses (net) to earned premiums (net).

The special circumstances of the particular type of insur-ance must be taken into account when calculating the combined ratio. The composition of the portfolio is of major importance, as well as the degree to which the amount


ERGO Insurance Group

Annual Report 2013

12 Management Report

The ERGO Insurance Group

of claims varies over time. The length of time between receiving the premiums and when the claims payments are made is of key significance. The longer this time period, the longer the length of time in which the premiums earned can be invested on the capital market.

Higher combined ratios in lines of business with compara-tively late claims notification and long claims settlement processes (e. g. liability insurance) regularly go hand in hand with higher results from investments, which in turn cover the provisions for claims. These earnings are not reflected in the combined ratio. Consequently, we aim to keep the combined ratio as low as possible.

The economic value creation is of greater significance, which cannot be evaluated properly using the combined ratio alone. The economic value added is determined internally – in compliance with the prospective regulatory scheme “Solvency II” – using economic earnings. Value added is characterised by the fact that value creation is not evaluated on the basis of current and forecast gains alone, but also by taking into account the amount of risks taken.

The starting point for calculating economic earnings is the change in economic equity within a period of time. Deter-mining factors are primarily the IFRS result, the change to the balance sheet and off-balance sheet reserves on the assets and liability side, as well as risk capital costs for the risks assured. The change in economic equity is adjusted according to capital measures, such as dividends, for example. Additional adjustments concern the change of items, which are not included in the economic capital, yet still bear influence on the economic value added. An example of this is the construction of goodwill value following an acquisition.

Life and Health: Economic Earnings

The products of life insurance and health insurance busi-ness are characterised by their long-term nature and the distribution of results over the duration of the policies. The performance of such long-term portfolios cannot be rea-sonably measured on the basis of a single year. Economic value creation is the basis for this, determined via our eco-nomic earnings. In life and health insurance the ecoeco-nomic earnings are determined on the basis of the Principles of Market Consistent Embedded Value (MCEV)©, the current

version of which was published by the European Insurance CFO Forum.

MCEV comprises a company’s equity and the value of business in force. The latter is the present value of future profits from the insurance portfolio and related invest-ments calculated using financial and actuarial methods, taking into consideration the fair value of the financial options and guarantees and the explicitly determined costs of capital. MCEV reflects the present value of all cash flows for all important currency regions on the basis of the so-called swap rates and the implicit volatilities at the valuation date of 31 December 2013. MCEV relates to the portfolio existing at the valuation date. This constitutes more than 97% of our life insurance and long-term health insurance business.

The change in MCEV within one year – excluding effects of exchange rate fluctuations, acquisition or sale of com-panies, dividends and capital injections – is shown as the total embedded value earnings. These are used under the term “economic earnings” to steer life and health insur-ance. If the total embedded value earnings are adjusted by also including the influences of changes in capital market parameters, such as changes to the rate of interest, the term is known as the embedded value operating profit, which is a measure of the business operation performance in any one year.


Managing investments

Asset-liability management is at the forefront of our investment strategy. We also take into account the impor-tant attributes of actuarial and other liabilities when compiling our investment portfolio, not only assessing the risks of the capital investments in absolute terms, but also in relation to changes in value which affect the liabilities. Changes in economic factors are likely to influ-ence the value of our capital investments, just as they will have an impact the value of actuarial provisions and liabilities. This reduces our susceptibility fluctuations in the capital markets and stabilises our own equity. Further-more, we reflect towards important aspects of liabilities, such as maturity and monetary structures, in addition to sensitivities to inflation on the capital investment sheet, acquiring, when possible, investments which react similarly. With regard to currency positioning, fluctuations in the exchange rate have just as much of an effect on assets as liabilities. Losses resulting from converting the currency of investments are largely economically offset by the gains made by converting technical liabilities. When applying this approach, we are always aware of differences to the structure of our commitments and take into account the attainable risk-bearing capacity and risk premium. To a certain extent, we adjust our investment portfolio so that it increases in value even in the face of rising rates of inflation. We therefore invest in inflation-sensitive invest-ment categories, such as indexed bonds and swaps, as well as tangible assets.

In order to ensure economic asset-liability management is as effective as possible, we also make use of financial derivatives to protect ourselves against fluctuations in the interest, stock and currency markets. According to IFRS, these are recorded in the income statement, i. e. as expenditure and earnings in the income statement. This type of recording is not done with related underlying transactions. These irregularities, in addition to further differences between economic and financial reporting, especially during times of increased volatility in the investment market, can lead to vast fluctuations in IFRS investments, currency or consolidated results, in spite of our well-balanced insurance and investment portfolios. Financial derivatives are explained in further detail in the Notes to the consolidated financial statements [6l].

Non-financial performance measures

In addition to these purely financial factors, non-financial performance indicators such as innovation, speed of pro-cesses, staff-training level as well as customer satisfaction (Customer Satisfaction Index, Net Promotor Score), sales service and productivity also play a part. In the long term, a company can only be successful if it operates sustainably and takes account of future-oriented qualitative factors too. This is why our strategic management focuses on the five target groups, namely customers, sales partners, staff, society and investors. We promote an entrepreneurial culture among our staff through the clear allocation of responsibility and accountability, recognising how much the individual, unit or field of business contributes to increasing value.


ERGO Insurance Group

Annual Report 2013


Dr. Nikolaus von Bomhard, Chairman

Chairman of the Board of Management of Münchener Rückversicherungs-Gesellschaft AG

Michael David, Deputy Chairman

Insurance employee

Dr. Christine Bortenlänger

Managing Director of

Deutsches Aktieninstitut in Frankfurt

Frank Fassin

District Chairman Financial Services ver.di NRW

Prof. Dr. Nadine Gatzert

Professor for Insurance Economics at the

Friedrich-Alexander University in Erlangen-Nuremberg

Dr. Heiner Hasford

Member of the Board of Management of

Münchener Rückversicherungs-Gesellschaft AG (retired)

Dieter Herzog Insurance employee Dr. Anne Horstmann Insurance employee Volker Kallé Executive employee Dr. Lothar Meyer

Chairman of the Board of Management of ERGO Versicherungsgruppe AG (retired)

Dr. Markus Miele

Managing Partner of Miele & Cie. KG

Silvia Müller

Insurance employee

Marco Nörenberg

Insurance employee

Bernd Otten

Head of Corporate Office Münchener Rückversicherungs-Gesellschaft AG

Prof. Dr. Bernd Raffelhüschen

Director of the Institute of Public Finance of the Albert-Ludwigs-University of Freiburg

Martina Scholze

Trade Union Secretary of Financial Services Group of ver.di

Richard Sommer

Former Head of the Federal Group Insurance of ver.di

Dr. Theodor Weimer

Spokesman of the Board of Management of Unicredit Bank AG

Heinz Wink

IT employee

Prof. Dr. Klaus L. Wübbenhorst

Managing Director of WB Consult GmbH

Supervisory Board

Management Report

The ERGO Insurance Group – Governing bodies


Audit Committee

Dr. Heiner Hasford Dr. Theodor Weimer Heinz Wink

Board Committee

Dr. Nikolaus von Bomhard Dieter Herzog

Dr. Markus Miele

Nomination Committee

Dr. Nikolaus von Bomhard Dr. Lothar Meyer

Dr. Markus Miele

Standing Committee

Dr. Nikolaus von Bomhard Michael David

Dr. Lothar Meyer Dr. Markus Miele Marco Nörenberg

Conference Committee

Dr. Nikolaus von Bomhard Michael David

Dr. Heiner Hasford Richard Sommer

Board of Management

Dr. Torsten Oletzky, Chairman

Group Development Communications Legal Affairs Compliance Internal Auditing

ERGO Customer Advocate

Strategic Marketing, Brand Management

Dr. Bettina Anders

IT Germany as well as Comprehensive Questions of Principle

Customer Service Company Organisation

Dr. Daniel von Borries

Investments & Asset Liability Management Life Insurance Germany


Christian Diedrich

Non-Life Insurance

(Property-Casualty, Legal Protection) Germany

Dr. Christoph Jurecka

Accounting Taxes

Planning and Controlling, Risk Management

Silke Lautenschläger, since 1 January 2014

Customer and Sales Services (as from 1 April 2014)

Dr. Ulf Mainzer, Labour Director

Domestic Human Resources as well as Comprehensive Questions of Principle, General Services, Facility and Materials Management/Purchasing and Logistics Germany

Dr. Jochen Messemer

International Operations (except for Travel Insurance)

Dr. Clemens Muth

Health Insurance (including Travel Insurance)

Dr. Rolf Wiswesser

Sales Germany

Competence Centre Bank Sales Germany Sales-related Marketing Germany


ERGO Insurance Group

Annual Report 2013


Several global factors are having a long-term impact on our business environment. Demographic changes are giving rise to fundamental developments which are creating enormous challenges for social welfare and healthcare systems, especially in industrialised countries. Increasing life expectancy is placing a burden on pay-as-you-go social welfare systems, a situation aggravated further by falling birth rates. Europeans will therefore only be able to maintain their old-age provision and first-class medical care in the medium term if they take out additional private cover. This presents a great opportunity for the private insurance industry. However, consistently low interest rates are threatening the success of long-term savings.

Developing and emerging countries are experiencing rapid population growth and a simultaneous swift rise in prosperity within broad sections of the population. As a result, the Asian economies in particular are growing in importance globally. By contrast, the relative economic and geopolitical weight of industrialised countries is declining. Worldwide economic integration, technical progress and digitalisation are speeding up the global network of capital flows and supply chains, which is increasing the complexity of the world economy.

Against this backdrop, we are observing a rising number of major events having an impact on the insurance industry. Insured losses are rising disproportionately to economic activity. We believe that climate change is contributing to this, alongside advancing urbanisation and a concen-tration of assets in exposed regions. These factors are giving rise to new potential risks and cumulative dangers, thus making it essential to continually develop actuarial practice.

Companies like ERGO, which are among the leaders in terms of risk management, are able to take advantage of the opportunities arising from this global trend. With our pronounced risk awareness, we are able to hold our ground even in a complex and volatile environment.

General economic trend

The global economy only grew moderately in 2013, as in the previous year. Growth in the Eurozone economy was recorded once again in the second quarter of 2013, for the first time since 2011. However, it is a slow recovery, taking into account the continuing sovereign debt and banking crisis. Germany achieved significantly stronger grown than the Eurozone on average. The trend on the German employment market remained positive. The unemploy-ment rate amounted to an annual average of 6.9%. Average inflation on consumer goods in Germany was 1.5% in 2013.

Economic growth in major newly industrialised countries was admittedly low, whilst rates of growth in Asian newly industrialised countries continued to be high in global terms

Capital market trends

Over the course of the year, the capital markets have relaxed further. Risk premiums on fixed-interest securities sank in comparison to German government bonds, but the volatility on the equity markets decreased by contrast to the previous year. The Euro Stoxx 50 was up by 17.9% in the annual period and the DAX 30 rose by 25.5%. There was an ongoing strong expansionist trend in monetary policy in the major economies of the world. The European Central Bank therefore lowered the base rate twice during the course of the year. Nevertheless, the US Central Bank held out the prospect of beginning with a gradual exit of buying government bonds in the event that there was a continued positive economic development as had already commenced in 2013. It finally announced the first step for January 2014 in December. Long-term interest rates in the US and in Germany will therefore rise during the course of the year. Returns on bonds for the US and Germany with a ten-year residual term were at 3.0% and 1.9% respectively at the end of the year, in comparison to 1.8% and 1.3% respectively at the beginning of the year.

Management Report

Business environment


The increase in interest rates had a negative effect on the market value of fixed income bonds. The environ-ment of continual low interest rates seen from a historic perspective created significant challenges for insurance companies, as recurring income from interest fell once again. Life insurers were placed under particular strain, as they had to safeguard interest guarantees.

The trend in the insurance industry

The overall economic trend is having a dramatic effect on the increase in premiums in the insurance industry. This is particularly the case with property-casualty insurance. In the case of life and health insurance, additional major factors are the influence of capital markets and changes to the relevant legal and tax frameworks. This means that the European insurance markets are subject to very different underlying conditions. In line with our main areas of business, the following sections take a closer view of trends experienced in our home market of Germany. On the whole, insurance premiums in Germany rose noticeably by 4.6% in 2013. Figures below are based on provisional estimates from the German Insurance Associa-tion (GDV) and the German AssociaAssocia-tion of Private Health Insurers (PKV). Market figures are based on gross figures determined according to German commercial law (HGB). This means they are not necessarily comparable with rein-surance figures or those calculated according to IFRS.

Life insurance in 2013

Life insurance in Germany (including pension and retirement funds) continued to suffer from persistently low interest rates in 2013. Overall new business was up by 7.7% across the market. This was due to strong business with single premiums, whereas business with recurring premiums was down by 13.8%, which was partly the result of a decline in annuities, especially Riester annuities. Provision products with guarantee components and products for insuring workforces dominated demand. Insurance against the financial impact of the need for long-term nursing care also recorded a marked increase in business.

Total premium income was up by 3.8% to € 90.7 billion (87.4 bn) across the industry. The amount paid out to life insurance customers was still on a high level, which was an evidence for the major importance of the industry.

Private health insurance in 2013

Private health insurance achieved premium growth of 1.5%, amounting to a total of € 36.1 billion (35.6 bn) in 2013 despite difficult market conditions. Benefits paid out by private health insurers, including claims settlement expenses, were up by around 4.3% (2.3) to € 24.3 billion (23.3 bn).

The state has been subsidising voluntary supplementary long-term nursing care cover as an addition to the state benefits since 1 January 2013 as a result of the Restructur-ing of Care Act (PNG). Furthermore, an act was introduced on 1 August 2013 which eradicated excessive demands concerning the ability to pay health insurance premiums. Persons unable to pay their premiums are now insured under an emergency tariff. This can also be backdated if an agreement had been made to suspend premiums beforehand. Finally, the German Medical Association and the Association of Private Health Insurers (PKV) signed a framework agreement in November 2013 concerning a joint and extensive amendment of a Doctor’s Scale of Fees (GOÄ). A first draft is due by the end of 2014.

Property-casualty insurance in 2013

Property-casualty insurance recorded a further healthy rise in premium income in 2013 of 3.2% to € 60.5 billion (58.7 bn). Adjusted for special statistical effects in the transport insurance line of business, growth at 3.4% was virtually on par with the previous year’s level (3.5%). Motor insurance (5.4%) and private property insurance (3.8%) were major driving forces behind growth. Above all, com-prehensive buildings insurance grew significantly due to possibilities for adjustment and cover extension (6.5%). But general personal accident insurance recorded a slight drop (− 0.5%). Growth in legal protection cover was up by 2%. In terms of claims, 2013 was shaped by several exceptional weather events. The flooding in June, hail storms in summer and the autumn storms had a particularly marked effect on our property insurance and motor insurance business. The biggest insured losses were caused by the hailstorms in July and August. In total, the number of claims resulting from instances of extreme weather was the second highest in Germany’s history. A trend from previous years that continued in 2013: the increase in regional storms. At 101%, the combined ratio was signifi-cantly higher than last year’s figure.


ERGO Insurance Group

Annual Report 2013


ERGO Insurance Group 2013 20121 Change

% € million € million

Total premium income 18,132 18,562 − 2.3 Gross premiums written 16,770 17,091 − 1.9 Investment result 4,959 5,268 − 5.9 Net insurance benefits2 16,367 16,750 − 2.3 Net operating expenses 3,547 3,512 1.0

Consolidated result 436 290 50.2

1 Previous year’s figures adjusted pursuant to IAS 8 2 Incl. policyholders’ profit participation

ERGO Insurance Group has developed well in the 2013 financial year, especially with regard to the consolidated result. At the same time, we have initiated and driven ahead with major projects.

With a consolidated result of € 436 million, ERGO Insurance Group has performed well. With an increase of 50.2% on the previous year, we easily achieved our target range of € 350 to 450 million. Taking into account the continuing sovereign debt and banking crisis and the slow recovery of Eurozone economies, this result is highly satisfactory. The management of the ERGO Group and its operations run on an economic basis. Economic value creation is the basis for this, determined via our economic earnings. In the 2013 financial year, these rose significantly to € 3.7  billion (1.2 bn). In addition to the recovery of capital markets the review of our model assumptions – for instance lapse behaviour, future loss experience or costs – were the reason for this.

In addition, we also made good headway with the extensive restructuring of our German sales organisations in 2013. This major project will result in savings from 2014 onwards. In early June 2013, ERGO presented the general public with a completely new generation of life insurance products which has been sold in two different versions since 1 July 2013. For terms of longer than 15 years, the ERGO Annuity Guarantee offers a guarantee of gross life insurance premiums paid until the start of retirement, as well as guaranteed pension payments. There are no guaranteed surrender values in the savings period. A reinsurance by

New Reinsurance Company Ltd., which also belongs to Munich Re, provides a stabilising effect in the event of early termination of surrender values for the customers during periods of negative capital market trends. In such cases, customers also receive the hedging amount as defined in the contract. The reinsurer hedges the guaranteed gross premiums when the pension commences. In addition, a second option is available, ERGO Annuity Opportunity, a unit-linked annuity without guarantees, but which is just as flexible in the savings phase as the Annuity Guarantee product. The new generation of products is of major sig-nificance to the development of our life insurance business and should account for a high proportion of new business over the medium term. The sales of new products have not yet had any major impact on the 2013 figures because the products have been limited to the “third tier” of old-age provision. In 2014, we also intend to prepare the product for the other two tiers; namely, state-subsidised pensions and company pensions.

ERGO now also provides life insurance policies in the Chinese market through the joint venture ERGO China Life, which commenced operations at the beginning of September 2013. This joint venture, launched by ERGO and the Chinese state-owned financial investor SSAIH, is focusing on the economically attractive province of Shandong. With roughly 97 million inhabitants, Shandong is China’s third-largest insurance market. As the company is accounted for using the equity method, its business is not included in the consolidated premiums written, but it is an important initiative for gaining a foothold in the Chinese market.

Management Report

Business performance


Total premium income 2013 € million 2012 € million Change % Life Germany 4,537 4,754 − 4.6 Health 4,840 4,932 − 1.9 Property-casualty Germany 3,267 3,138 4.1 Direct insurance 1,156 1,212 − 4.6 Travel insurance 455 460 − 1.1 International 3,877 4,066 − 4.6 Total premiums 18,132 18,562 − 2.3

Premium income

In the year under review, gross premiums written accord-ing to IFRS – which, in contrast to total premium income, do not comprise the savings component of unit-linked life insurance and capitalisation products – amounted to € 16.8 billion (17.1 bn), a decrease of 1.9%. In the same period, total premium income was down by 2.3% to € 18.1 billion (18.6 bn). This was due to both organic effects and disposals. Furthermore, we sold considerably fewer single-premium life insurance policies in Germany and Austria and subscribed to a significantly lower volume of MaxiZins single-premium products in direct insurance. This is partly due to low interest rates. In addition, we sold our South Korean subsidiary ERGO Daum Direct in October 2012. This sale accounts for 0.6 percentage points of the decrease.

For domestic business, gross premiums written according to IFRS amounted to € 13.0 billion (13.2 bn) (− 1.2%) and total premium income amounted to € 14.0 billion (14.2 bn) (− 1.7%). For international business, gross premiums written according to IFRS amounted to € 3.8 billion (3.9 bn) (− 4.3%) and total premium income amounted to € 4.1  billion (4.3 bn) (− 4.5%).

Domestic life insurance business in Germany saw gross premiums written fall by 5.7% to € 3.7 billion (3.9 bn). Both this and the 4.6% drop in total premiums can be largely traced back to lower single-premium amounts. Due to the low rate of interest, we are very cautious about the con-ditions we offer our customers. Overall, single-premium policies fell by 11.0% to € 835 million (939 m). Widespread economic uncertainty and low interest rates were reflected in the figures for regular premiums in new business too, reaching only € 237 million (307 m), down 23.1% on last year’s figures. An additional dampening effect, both here as well as in the other German business segments, was the current restructuring of our sales organisations, which has made new business more difficult. When measured

in terms of APE (annual premium equivalent, i. e. regular premiums plus a tenth of single premiums), new business fell by 20.2% to € 320 million (401 m).

In the 2013 financial year, gross premiums written in the Health segment accounted for € 4.8 billion (4.9 bn), slightly down on the previous year (− 1.9%). The introduction of what is known as the ‘hardship tariff’ on 1 August 2013 played a role in this. Premiums in supplementary insurance policies were up by 0.8% on the previous year, while they decreased by 2.6% in comprehensive health insurance. In new business, the future of private health insurance was debated intensively in the run-up to the German elections. This discussion caused insecurity among poten-tial customers. Furthermore, the significant price hikes as a result of the switch-over to the new unisex tariffs also had an impact on new business. As compared with 2012, this addition decreased significantly in comprehensive health insurance (− 15%). In supplementary insurance, the decrease was more pronounced at 23.1%, partly because the 2013 seasonal year-end business was down on the previous year.

Our German property-casualty segment experienced satisfactory growth in 2013. Premium income increased by 4.1% to € 3.3 billion (3.1 bn), although the development across the different segments varied widely. Commercial / industrial insurance business shrank slightly by 0.4% as a result of reorganisational measures in the property and transport business. By contrast, we achieved a signifi-cant increase in premiums in commercial and industrial liability business, partially as a result of excellent develop-ments in new business. In the area of private property insurance, we registered a 1.6% rise in premiums and a 3.6% increase in motor insurance. By contrast, a decline in the number of premiums was recorded in legal expenses insurance (− 1.9%) and personal accident insurance (− 1.9%). The latter was primarily due to the fact that we took personal accident insurance products with a return of premium (ROP) off the market at the end of 2012 so


ERGO Insurance Group

Annual Report 2013


Investment result 2013 20121 Change

% € million € million Regular income 4,750 4,820 − 1.5 Write-ups/write-downs − 361 109 − 431.7 Realised gains/losses 500 35 1,331.3 Other income/expenses 71 305 − 76.6 Total 4,959 5,268 − 5.9

1 Previous year’s figures adjusted pursuant to IAS 8

Management Report

Business performance

we can concentrate on special risk accident insurance. In this segment, we are now focussing on special risk accident insurance and ensuring quality of life through various assistance services. The significant increase in ceded business, up from € 36 million in the previous year to € 161 million in the year under review, is primarily due to the expansion of our business in the UK.

Total premium income for direct insurance business was down by 4.6%, which is mainly due to the capitalisation product MaxiZins: To reflect the low interest rates on the capital markets, we also lowered interest rates, which alone resulted in a decrease in premium income of € 88 million as compared to the previous year. Gross premiums written in direct insurance increased by 3.8%, however, to € 993 million (957 m). Total premium income from life insurance decreased by 13.9%. The only health insurance we offer as direct insurance is supplementary, an area which once again registered solid growth of 10.9%. The property-casualty segment also showed a healthy development of 7.0%.

In the Travel segment, gross premiums written were 1.1% lower than the previous year. This was primarily due to our risk and profit-based underwriting policy, particularly in Germany and Scandinavia, but also due to the difficult economic situation primarily in the south of Europe. German business was down by 2.4%, while international premiums decreased by 0.1%.

The fact that total premium income in the International segment was lower than the previous year (− 4.6%) is due to the effects described above, namely: sale of assets and lower single premiums, as well as currency exchange rate effects. Adjusted for the sale of assets and currency exchange rate effects, premium income fell by 0.9%. During the same period, gross premiums written amounted to € 3.5 billion (3.7 bn) which is equivalent to a 4.5% drop. As regards life insurance, premium income was 5.5% down on last year’s figure, with the number of premiums dropping in Austria and Poland in particular. In the inter national property-casualty segment, we recorded a decrease in gross premiums written of 3.9%. The sale of our South

Korean subsidiary ERGO Daum Direct had a negative effect on this, the premiums amounting to € 105 million were included in the 2012 financial year. Adjusted for the sale, premiums increased by 0.7%. We achieved growth in the Polish market and in the UK legal expenses insurance market in particular.

Benefits and costs

Benefits paid out to our clients in the annual period amounted to € 17.0 billion (17.6 bn). For own account, i. e. after deduction of the reinsurers’ share, the figure was € 16.4 billion (16.7 bn). The decrease of 2.3% was primarily down to lower transfers for the provision of future policy benefits in the German and international life insurance market. Across the Group, provisions were on balance down 40.0% as compared with the previous year. Changes in unrealised gains and losses in unit-linked life insurance play a particular role in this. While the net balance was still positive, it was € 202 million lower than in the 2012 financial year, but this effect is not included in the income statement. By comparison, expenditure for premium refunds was higher than in the previous year, primarily because of the expected tax rebate in the German Life insurance segment, which was generally passed on to policyholders.

Claims expenditure was roughly the same as in the previous year (+ 0.9%), although expenditure in the German health and property-casualty segments increased disproportion-ately. In the German property-casualty segment, claims expenditure increased by 3.2% and was thus a little higher than net premiums earned; as such, the claims ratio for the reporting period was 62.5% (62.3%). In terms of claims, 2013 was shaped by several exceptional weather events. The extreme flooding in June, hail storms in summer and the autumn storms had a particularly marked effect on our property insurance and motor insurance business. On the other hand, our restructuring measures have also been initiated, so we were able to offset some of the effects of the storms.


Investment result by type of investment 2013 20121 Change

% € million € million

Land and buildings, including buildings on third-party land 173 183 − 5.8 Investments in affiliated companies and associates 49 52 − 5.6

Loans 2,370 2,303 2.9

Other securities 2,260 2,389 − 5.4

Other investments 107 341 − 68.5

Total 4,959 5,268 − 5.9

1 Previous year’s figures adjusted pursuant to IAS 8

The combined ratio in German property-casualty insurance was only slightly above the previous year at 96.1% (95.8%). In the German Life, International, Direct and Travel insurance business segments, claims expenditure was also down. The developments in our International business have been very positive and we were able to further improve the combined ratio. At 99.2% (100.5%), we were once again able to attain the technical profit zone. The range of measures implemented over the past few years to improve earnings are starting to show effects. We recorded good technical profits in Poland, the UK and Greece in particular in 2013. The claims ratio also improved once again in Turkey. The sale of ERGO Daum Direkt had a positive impact too. At € 3.55 billion (3.51 bn), net operating expenditure was up slightly (+ 1.0%) on the previous year. The reason for this was the end of a major reinsurance contract and the result-ant abolition of reinsurance commission in the Health seg-ment. In gross terms, administrative expenses increased by 4.7%, which is primarily due to the expansion of business in German property-casualty insurance in the UK. Acquisition costs decreased by 6.0% as a result of the weak performance in new business.

Investment result

Our overall investment result was down 5.9% on last year’s level at € 5.0 billion (5.3 bn). Returns based on the average amount of investments at market value stood at 3.7% (4.1%). The decrease was the result of lower earnings from unit-linked life insurance as well as lower levels of interest income. Adjusted for results of unit-linked life insurance, the investment result would have been € 4.6 billion (4.7 bn), a decrease of 2.3%. Returns based on the average amount of investments at market value would have stood at 3.6% (3.8%). In addition, higher results from the disposal of

interest-bearing investments were able to virtually offset a considerably worse result on derivatives. The high results from the disposal of interest-bearing investments are primarily due to increased occurrence of additional interest reserves.

Over the course of the year, the capital markets have relaxed further. Volatility decreased and major equity markets such as the Euro Stoxx 50 and DAX performed well. Although long-term interest rates rose, they stayed relatively low by historical standards. The returns on ten-year German government bonds increased by 61 basis points over the course of the year to 1.93%. These low interest rates continue to cause us major problems as an institutional investor, since guarantees and interest returns on our customers’ investments are so important for our success on the old-age provision and health insurance markets. These products demand high levels of guaranteed payouts and returns. We therefore placed the bulk of our investments, amounting to € 126 billion (125 bn), into a broad range of fixed-interest securities and loans. A break-down of our portfolio and major developments is detailed in the next chapter of this report.

At € 4.4 billion , our ordinary investment result was 2.3% down on last year’s figure of € 4.5 billion. This is where the result of the falling average interest rate can be seen in our portfolio. The extraordinary result from capital investments recorded a drop of € 207 million, bringing it to € 591 million (798 m) (− 26.0%). A much lower figure from unrealised gains and losses in unit-linked life insurance was the main cause of this. Although the figure was positive, it was down by € 202 million. The portfolio of interest-rate derivatives we hold to hedge the risk of sustained low interest rates also decreased in value as a result of increasing interest rates. This led to losses of € 129 million (166 m), resulting in a negative impact on the consolidated result of €− 32 mil-lion (42 m).


ERGO Insurance Group Annual Report 2013 22 Management Report Business performance


In the year under review, the operating result was down by 23.6% to € 732 million (958 m), partly due to strains put on us from our interest rate hedging programme, as well as an expected tax rebate in the German life insurance segment, which we passed on to our policyholders. This is made up of technical and non-technical results. Technical interest income is allocated to the technical result. For specific information on technical interest income in particular business segments, please see comment [25] in the Notes. After the technical interest income has been deducted, the non-technical result essentially comprises that part of the investment result which is not allocated as benefits to customers. This was down by € 11 million (307 m) in reflection of the lower investment result. By contrast, the technical result rose by 14.3% to € 744 million (651 m) which reflects, among other things, lower provisions to the net level premium reserve in German and international life insurance.

The consolidated result was € 436 million (290 m) and thus at the upper end of our target range of € 350 to 450 million. The significant improvement in the result was reflected across almost all business segments. Our results improved dramatically in the health (+ 32.1%) and German property-casualty insurance (+ 28.7%) business segments

in particular. Despite numerous storms in the year under review, significant improvements in the German property-casualty segment show that our restructuring measures are starting to take effect. The German life insurance segment also enjoyed a positive year. After recording slight losses last year, the year under review recorded a very positive result, despite low interest rates still creating difficulties for the market. A tax rebate also had a positive effect. A strain was put on all three segments by additional costs amounting to € 43 million as a result of expenditure associated with implementing our 2018 business strategy action plan. In the previous year, the cost of the restruc-turing programme and the reorganisation of our German sales organisations reduced our result by € 128 million. A dramatic rise in direct insurance (+ 31.3%) was also recorded. The result for our international operations was down on last year (− 15.0%), but still remains at a good level at € 101 million. This is primarily due to additional costs from our interest rate hedging programme. Adjusted for these extraordinary costs, the results would have far exceeded figures for the previous year. In addition, in the year under review, the impairment losses of goodwill in Italy affected earnings in the international segment to the tune of € 33 million.

Events after the balance sheet cut-off date

No events have occurred since the balance sheet cut-off date which require separate disclosure.


Our capital structure is essentially determined by our insurance activities: the liabilities side of the balance sheet is dominated by technical provisions (86.6% of the balance sheet total including unit-linked business), i. e. future pay-out commitments to our customers. Equity (3.1% of the balance sheet total) and strategic debt capital items (0.8% of the balance sheet total) are the most important sources of funds on the liabilities side. The assets side of the balance sheet is dominated by capital investments, which essentially serve to cover technical provisions.

Equity and capital management

Equity rose slightly to € 4.62 billion (4.57 bn) by the end of the reporting year. The increase in the consolidated result and retained earnings was offset by the drop in miscellaneous reserves. The latter includes unrealised net gains and losses attributed to the shareholders, which dropped as a result of rising interest rates. We shall report on the develop ments of our off-balance sheet valuation reserves later on in this chapter.

We practise active capital management, which ensures that ERGO’s capital base is maintained at an appropriate level. We determine our capital requirements using risk models as well as provisions laid out by the regulatory authorities. Subordinated capital continues to play an important role in our capital management and is partially classified as equity. Overall, our equity should not exceed the level required to run the business. As we have been incorporated into Munich Re’s group-wide capital manage-ment strategy, we benefit from the group’s overall financial strength.

There is no plan for any control at ERGO Group level. Group supervision is carried out at the Munich Re level. ERGO’s financial strength and that of its major subsidiaries are assessed by leading rating agencies. These ratings are high and are published on the ERGO website: www.ergo.com.

Debt capital

Subordinated capital and strategic debt capital supplement our financial resources. They reduce our capital costs and ensure that sufficient liquidity is available at all times. Subordinated capital recorded on our balance sheet stems primarily from Munich Re (see also comments [14] in the Notes).

Our liabilities are mainly deposits retained from outwards reinsurance (35.7%) and our direct business (39.8%).

Technical provisions

Technical provisions are largely attributable to personal lines business, in particular domestic Life (49%) and Health (30%) business. Detailed information on reserves is given on pages 99 et seq. of the Notes to these financial statements.

In the case of obligations arising from insurance business, we are unable to predict the time and amount of pay-ment with certainty. The pattern of pay-outs of technical provisions over time varies enormously from one line of business to another. As regards travel insurance, business is extremely short-term. On average, final settlement of claims takes just a few days. In the area of property-casualty insurance, a large portion of the reserves put aside is paid out within a year. For liability insurance, however, substantial amounts may accrue decades after the policy was taken out. In life and health insurance, we use premiums to create actuarial and ageing provisions, which make up the lion’s share of technical provisions.

Management Report


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