ERGO · 2012. 10. 31. · ERGO Insurance Group in summary See inside folding flap for brief information regarding the Group and ERGO’s shares. In a special report within this annual

A N N UA L R E P O R T A N D ACCO U N TS

ERGO Insurance Group

ERGO

2000

ERGO Insurance Group in summary

See inside folding flap forbrief information regardingthe Group and ERGO’s shares.

In a special report within this annual report weconcentrate on the topic of genetic engineering(p. 16–23). The advancements made in this field,e.g. decoding of human genetic make-up, also havean effect on the insurance industry. We comment onthe topic of genetic tests and insurance and appealfor a wide social debate to take place.

1999 2000 Change Morepr. yr. information

(%) on page:

Gross premiums written € million 11,928 12,669 6.2 34

Insurance benefits (net) € million 11,945 14,135 18.3 36

Net investment income € million 5,290 7,234 36.8 36Profit on ordinary activities € million 831 1,151 38.6 37Taxes on income € million 368 335 – 8.9 37Year-end result (profit after taxes) € million 463 816 76.3 37Year-end results apportionable to minority interests € million 4 – 12 – 37Net profit for the year € million 467 804 72.3 37

Investment portfolio € million 85,049 88,828 4.4 35Technical provisions (net) € million 73,329 77,774 6.1 –Shareholders funds € million 5,159 6,330 22.7 37

Full-time representatives 17,656 23,882 35.3 54Salaried employees 24,692 27,489 11.3 54

Group earnings per share in accordance with IAS € 6.18 10.65 72.3 68Group earnings per share (adjusted) € 4.97 7.40 48.9 68Dividend per share € 1.02 1.30 27.5 68Dividend distribution € million 77.2 98.1 27.1 68

ERGO share price as at 31 December € 122.80 180.00 46.6 67Market capitalization of ERGO as at 31 December € million 9,270 13,589 46.6 69

Cover

The ERGO Insurance Group was establishedin 1997 as a result of the merger of theGerman insurance companies VICTORIA,Hamburg-Mannheimer, DKV and D.A.S.

With gross premiums written amountingto € 12.7 billion ERGO is no. 2 in the Ger-man primary insurance market. More than15 million customers in Germany and over25 million in Europe have put their faithinto the Group’s insurance companies.ERGO is one of the larger investors in Ger-many with more than € 88 billion worth ofinvestments.

ERGO’s main business comes fromprivate individuals but it is also a majorprovider of company pension schemes.Industrial business is written on a selectivebasis. ERGO is the European market leaderin private health insurance and legal ex-penses insurance; the market share in eachsector in Germany is 16%. With a 12%share in the German personal accidentinsurance market it is in second place andcomes third in the life insurance sectorwith a market share of 8%. The propertyand casualty insurance market share is 4%although it is substantially higher in theprivate individual business.

The ERGO Insurance Group expanded itsbusiness abroad quite considerably duringthe year 2000. Apart from Germany, it is

located in 22 European countries. Follow-ing the purchase of the company Baye-rische Vita, it obtained a foothold in thedynamic life insurance market in Italy andthe activities in Central and Eastern Europehave been strengthened significantly as aresult of the acquisition of the majorityshare in Alte Leipziger Europa. ERGO hassince become no. 3 in the Polish propertyand casualty insurance market behind bothof the former state insurance companies.For the year 2000, premium income fromabroad amounted to € 1.7 billion, repre-senting around 13% of total premiums.The foreign share would have even risen to18% if the premiums for all the companieshad been consolidated for the entire year.

ERGO and Munich Re are combiningtheir investments in MEAG MUNICH ERGOAssetManagement. The assets undermanagement have a market value of morethan € 135 billion. By combining invest-ments it is able to increase the diversifi-cation of products and markets in order toincrease returns and reduce investmentrisk as well as to facilitate the set-up anddevelopment of financial services forprivate and institutional customers. In orderto enhance the funds administrationprocess, MEAG has set up the joint ventureFondsServiceBank together with Activest,the investment affiliate of the BayerischeHypo- and Vereinsbank.

The chart shows themain companies thatmake up the ERGOInsurance Group. For amore detailed overview,please see the organi-zational chart on theback folding cover.

The ERGO Insurance Group

ERGO

��

Shares in ERGO Versicherungsgruppe AG – Summary

2000 – a year of extremes for thestockmarket

The market upturn which had begun inOctober 1999 continued to rise rapidlyduring the first quarter of the year underreview. When the indexes reached theirhighest values during the first half of March2000 the German DAX had gained nearly60% when compared to 1 October 1999.

First and foremost, the so-called TMTvalues (for Technology, Media, Telecommu-nication) were responsible for the brilliantdevelopment in the stockmarket. “Growthstocks” of the so-called “new economy”were highly sought after and “value stocks”were no longer in demand.

The mood on all markets changed at theend of March. The prices of indexes domi-nated by TMT stocks, such as NEMAX orNASDAQ, fell by a third in just one monthduring the first sharp fall in prices. Follow-ing a sideways trend, they continued to fallin autumn and by the end of the year (andlater) were dramatically below the onset ofthe rally in October 1999.

On the other hand, the ERGO-share in-creased in value. Investors rediscoveredquality shares in companies which dis-played acceptable business patterns andsustained profits. The discussion concern-ing the promotion of private provision forold-age within the framework of the Ger-man pension reform made evident thegreat business opportunities for strong per-sonal insurers like ERGO. The ERGO shareachieved a year-end value of € 180, thusattaining a rise in value for the year 2000of 46.6%. The MDAX increased by 14%for the same time period and the DAX evenshowed a drop of 7.5%.

Strong rise in Group’s profits

The ERGO Insurance Group achievedexceptional profits in the financial year2000 with a strong development in bothbusiness and premium income. Comparedto 1999, net profit rose by 72.3% to €804 (467) million. Earnings per share is €10.65 (6.18). The deferred taxes had to berevalued due to the cut in the corporationtax rate in Germany from 40% to 25%

from 2001. Net Group profit followingdeferred tax adjustment rose by 48,6 % to€ 558 (376) million.

Continued increase in dividends

The Board of Management and SupervisoryBoard propose to the Annual General Meet-ing to increase the dividends by 27.5% to € 1.30 (1.02) per share. Shareholders liableto pay German income or corporation taxreceive a dividend of € 1.86 (1.46) includ-ing a tax credit of € 0.56. If the shareholdersaccept this proposal, we have paid out ahigher dividend for each year since ERGOwas founded. Total distributed profits willaccount for € 98 (77) million.

Free float is 37.1 %

The shares of the ERGO Versicherungs-gruppe AG remain unchanged at 62.9% inthe hands of the Munich Re. More than50,000 institutional and private investorshold the remaining 37.1%.

Intensive dialogue with the investors

We are looking to communicate with thenational and international capital marketsby holding numerous presentations andindividual meetings. Our communicationpolicy is consistently directed at share-holders. Last year our activities includednumerous meetings in Germany andpresentations – so-called “roadshows” – inLondon and Milan and in New York in early2001.

In 2000, we published a half-yearlyreport for the first time which includedbalance sheet, profit and loss account andcash flow statement. As from 2001 we willpublish quarterly reports.

Movement in the price of ERGO shares in 2000

150%

140%

130%

120%

110%

100%

90%

80%

70% February April June August October December

DAX

CDAX Vers.

MDAX

ERGO

ERGO

ERGO Insurance Group structure, by business segments

Hamburg-MannheimerVersicherungs-AG

VICTORIALebensversicherung AG

VICTORIAVersicherung AG

Hamburg-MannheimerSachversicherungs-AG

VorsorgeLebensversicherung AG

VICTORIARückversicherung AG

D.A.S.Versicherungs-AG

Hamburg-Mannheimer foreignsubsidiaries

D.A.S.foreignsubsidiaries

VICTORIAforeignsubsidiaries

100% 99.5% 92.47% 99.99%

100% 100%100%

6.29%

Versicherungsgruppe AG

Life

Property andcasualty

Legal expenses

Health

Financial services

Foreign businessoperations

D.A.S.Rechtsschutz-Versicherungs-AG

DKVDeutsche Kranken-versicherung AG

MEAGMUNICH ERGOAssetManagementGmbH

Hamburg-Mannheimer Rechtsschutz-versicherungs-AG

ERGOTrust GmbH

DKVforeignsubsidiaries

ERGOforeignsubsidiaries

99.9% 40%

51% 51%

VICTORIAKranken-versicherung AG

100%25%

24%

1.79%25.53%72.56%

49%

Consolidated Annual Accountsin accordance with IAS

ERGO Versicherungsgruppe AG

2000

ERGO Insurance Group 3

Contents

4 The Company’s govering bodies

7 Report of the Supervisory Board

10 Letter to the shareholders by the Chairman of the Board of Management

16 Genetic research: prospects and challenges for the insurance industry

and their customers

24 The German insurance industry in 2000

Management Report 30 Consolidated companies

32 Performance of the ERGO Insurance Group

38 Life insurance

41 Health insurance

43 Property and casualty insurance (not including legal expenses insurance)

46 Legal expenses insurance

47 Financial services

49 ERGO in Germany

51 ERGO abroad

54 Personnel report

56 Risks to future performance and risk management

60 Outlook for 2001

66 Proposed appropriation of profit

67 Shares in ERGO Versicherungsgruppe AG

Consolidated 72 Consolidated balance sheet as at 31 December 2000

Annual Accounts 74 Consolidated profit and loss account

for the year ended 31 December 2000

75 Cash flow statement for the 2000 financial year

76 Segment reporting – classification according to business segments

82 Segment reporting – classification according to regional segments

85 Notes to the Consolidated Annual Accounts

141 Audit report

142 Selected participating interests

145 Glossary of terms

150 Group addresses

4 ERGO Insurance Group

The Company’s governing bodies

Supervisory Board Dr. Hans-Jürgen SchinzlerChairman of the Board of Management of Münchener Rückversicherungs-Gesellschaft AG(Munich Re), Chairman

Horst PoganazEmployee of the VICTORIA insurance companies, Deputy Chairman

Helmut AhrensTrade-union secretary to the Executive Board of the Wholesaling & Retailing,Banking and Insurance Employees’ Union (HBV), Düsseldorf, until 12 May 2000

Werner BaumannDirector, Employee of the VICTORIA insurance companies, until 12 May 2000

Günter BayerleEmployee of DKV Deutsche Krankenversicherung AG, since 12 May 2000

Hans-Peter ClaußenEmployee of D.A.S. Deutscher Automobil Schutz Allgemeine Rechtsschutz-Versicherungs-AG

Dr. Ralf CorstenMember of the Board of Management of PREUSSAG AG

Helmut DobmeierExecutive employee of the VICTORIA insurance companies, since 12 May 2000

Frank FassinDeputy District Chairman (Landesbezirksleiter) of the Wholesaling & Retailing,Banking and Insurance Employee’s Union (HBV)

Hinrich FeddersenMember of the Executive Board of the Wholesaling & Retailing, Banking and Insurance Employees’ Union (HBV), since 12 May 2000

Prof. Dr. Dr. h. c. Joachim FunkChairman of the Supervisory Board of Mannesmann AG (retd.)

Dr. Joachim von HarbouMember of the Board of Management of Dresdner Bank AG

Dr. Heiner HasfordMember of the Board of Management of Münchener Rückversicherungs-Gesellschaft AG

Dr. Edgar JannottChairman of the Board of Management of ERGO Versicherungsgruppe AG (retd.)

Dr. Gerhard JoossMember of the Board of Management of ThyssenKrupp AG

Klaus RothEmployee of DKV Deutsche Krankenversicherung AG


Michael SchröderEmployee of Hamburg-Mannheimer Sachversicherungs-AG, until 12 May 2000

Richard SommerHead of the insurance federal occupational group and member of the Federal Executive ofthe German Salaried Staff Union (DAG)

Holger StubbeEmployee of Hamburg-Mannheimer Versicherungs-AG

Dr. Richard TrautnerDeputy Chairman of the Supervisory Board of Bayerische Hypo- und Vereinsbank AG

Dr. Hans-Dietrich WinkhausChairman of the Executive Management of Henkel KGaA (retd.)

Marianne WlochEmployee of Hamburg-Mannheimer Versicherungs-AG

Bernd WredeChairman of the Board of Management of Hapag-Lloyd AG

Mediating Committee Dr. Hans-Jürgen Schinzler

Horst Poganaz

Dr. Edgar Jannott

Richard Sommer

Standing Committee Dr. Hans-Jürgen Schinzler

Horst Poganaz

Dr. Edgar Jannott

Holger Stubbe

Dr. Hans-Dietrich Winkhaus

Board of Management Dr. Hans-Jürgen SchinzlerCommittee

Hans-Peter Claußen

Dr. Edgar Jannott


The Company’s governing bodies

Board of Management Dr. Lothar MeyerChairmanStrategy/corporate policyPlanning/controlling/auditingAccounting/taxesInvestor relations/press

Dr. Jan BoetiusHealth insurance

Rudolf de Coster Until 30 June 2000Legal expenses insurance

Horst Döring Since 1 July 2000Property and casualty insurance

Dr. Franz Wilhelm HoppFinances, capital investments, financial services

Fritz Horst MelsheimerUntil 30 June 2000Property and casualty insurance

Wulf NibbeSince 1 July 2000Legal expenses insurance

Michael RosenbergInformation processing, life insurance

Hans UferForeign business operations

Dr. Götz WrickeLife insurance, personal accident insurance


Report of the Supervisory Board

We have performed our duties in accordance with the law and the Articlesof Association and have monitored at all times the Company’s manage-ment throughout the reporting year. Furthermore, the Board of Manage-ment has provided us with numerous verbal and written reports and hasregularly informed us on the progress of the Company and its subsidiarycompanies as well as on all important developments during regularmeetings. We have also discussed in depth the situation and progress ofthe companies and fundamental issues concerning management and theSupervisory Board during four plenary sessions. In the context of continuedimprovement of the synergy potential within ERGO, the managementboard has provided us with detailed information regarding the set-up anddevelopment of the companies MEAG MUNICH ERGO AssetManagementGmbH and ITERGO Informationstechnologie GmbH. During the plenarysessions, another major aspect we focused upon was the projects toexpand foreign business of the ERGO Group in Europe. Following thechangeover in Group accounts to IAS in 1999, we have examined the half-yearly accounts produced under IAS for the first time in 2000.

The committees constituted under the Procedural Rules of the Super-visory Board – the Standing Committee, the Board of ManagementCommittee, the Mediating Committee in accordance with § 27 section 3of the German Law on Codetermination – duly performed their assignedtasks. During the financial year 2000 the Standing Committee met fourtimes and the Board of Management Committee held three sessions.The Mediating Committee was not required to convene.

The Annual Accounts for the year 2000, including ManagementReport (in accordance with the German Commercial Code) and the Con-solidated Annual Accounts, including Group Management Report (inaccordance with IAS), which were prepared by the Board of Manage-ment, were examined by the auditors – BDO Deutsche WarentreuhandAktiengesellschaft Wirtschaftsprüfungsgesellschaft of Munich – andpresented with unqualified auditor’s certificates.

Following our own examination, we submitted these documents andthe auditor’s reports to a final review at our Meeting on the AnnualAccounts which was also attended by the auditor. We raised no objections. In particular, we are not aware of any risks where there isinsufficient provision made in the Annual Accounts. We hereby approvethe Annual Accounts for the year 2000 which are thus deemed final and support the Board of Management’s proposal concerning the appropriation of the balance sheet profit.


We have examined the Board of Management’s report on the relationswith affiliated companies and have no objections. The auditor issued thefollowing certificate to the Board of Management’s report on the rela-tions with affiliated companies:

“After having duly audited and appraised the report, we hereby certifythat

1. the facts stated in the report are correct,

2. the Company did not render unduly high remuneration for any trans-action recorded in the report.”

We endorse this judgement. Having examined the report on relationswith affiliated companies, we have no reservations regarding the Boardof Management’s statement at the end of the report.

The employees’ representatives were elected to the Supervisory Boardon 12 May 2000. Members of the Supervisory Board representing theemployees who had, until then, been appointed by order of court thusended their term of office. Helmut Ahrens, Werner Baumann andMichael Schröder are no longer members of the Supervisory Board. Wewould like to offer them our thanks for their active involvement in theBoard’s work. Günter Bayerle, Helmut Dobmeier and Hinrich Feddersenhave been recently elected to the Supervisory Board. The remainingemployees’ representatives who were appointed by order of court werere-elected. Mr Horst Poganaz was re-elected as deputy chairman duringthe Supervisory Board meeting which followed.

Dr. Edgar Jannott, who was already an appointed member of theSupervisory Board by order of court, was elected to the SupervisoryBoard during the ordinary general meeting on 25 May 2000. Hisappointment by order of court was then completed.

Report of the Supervisory Board


Mr Rudolf de Coster, who has been a member of the ManagementBoard since 27 January 1998, resigned from the Board on 30 June 2000due to retirement. We would like to thank Mr de Coster for his commend-able and successful work. His place was taken over by Mr Wulf Nibbe,Chairman of the Managing Board of D.A.S. Deutscher Automobil SchutzAllgemeine Rechtsschutz-Versicherungs-AG. Mr Nibbe assumes the tasksundertaken by Mr de Coster in the business field of legal expensesinsurance.

Mr Fritz Horst Melsheimer, a member of the Managing Board since1 July 1999, also resigned from the Board on 30 June 2000. We wouldlike to thank him for his efforts on behalf of the Company. We haveappointed Mr Horst Döring, Chairman of the Managing Board ofVICTORIA Versicherung AG as successor to Mr Melsheimer. Mr Döring isresponsible for property and casualty insurance and responsibility forpersonal accident insurance has been assumed by Dr. Götz Wricke.

Dr. Franz Wilhelm Hopp and Hans Ufer have resigned from themanaging board of their respective operating companies as at31 December 2000 in order to concentrate more on the strategic areasof Finance and Foreign Business respectively. Dr. Hopp is now Head ofFinance for the entire Group and Mr Ufer is responsible for the divisionForeign Business.

We would like to take this opportunity to thank the Board of Manage-ment, the employees of the Company and those of all the companieswithin the ERGO Insurance Group for all their efforts, their commitmentand for the success achieved during the year under review.

On behalf of the Supervisory Board

Dr. Hans-Jürgen SchinzlerChairman

Signed in Düsseldorf, 29 March 2001


The progress of the ERGO Insurance Group in 2000 was marked byactivities in two areas: continued integration of the ERGO companies inGermany as well as the targeted expansion of foreign business. At thesame time there has also been an once again excellent development inour business figures. Particularly encouraging: Even the capital markethas recognized and appreciated the potential of the ERGO share in 2000– the share price recorded an increase of almost 50%. Thus, the ERGOInsurance Group is entering the new year full of strength and optimism.

� ERGO’s continued strong growth

In the financial year 2000 the premium income of ERGO rose by6.2% to € 12.7 billion. The major growth factor was foreign businesswith an increase in premiums of 42.5%, both as a result of impulsesfrom organic growth as well as new acquisitions. In Germany the risein premiums was 2.3%.

ERGO’s investments rose – in spite of the market situation which wastense at times – by a further 4.4% to € 89 billion. Taking the con-solidation of special funds into account for the first time, net invest-ment income even increased by 37% to € 7.2 billion.

The shareholders’ funds have also significantly increased by 22.7% to€ 6.3 billion, a sign of outstanding stability and strength of reserves.

� Excellent development of net income

Net income climbed particularly strongly by more than 72% to € 804million. Earnings per share rose by 72.3% to € 10.65. Apart from therenewed improvement of current profits, special funds, which – in accordance with IAS – were consolidated for the first time in 2000,had positive effects on the year-end results. In addition, the drop inthe corporation tax rate in Germany from 40% to 25% had a con-siderable effect on the profits. The partial revaluation of deferred taxitems resulted in extraordinary profits. After adjusting the tax effect,net income reached € 558 million which is 48.6% more than in theprevious year.

Dr. Lothar MeyerChairman of the Board of Management, ERGOVersicherungsgruppe AG

ERGO’s net profitgrows by 72.3%.

!


� Excellent progress in price of the ERGO share

During spring 2000, all interest on the stock exchanges seemed to beaimed at rapid growth promised only by technology values. Even therate of the ERGO share had suffered under this trend. Nevertheless, asthe year progressed our share developed brilliantly: With a closingprice of € 180 at the end of the year the ERGO share improved by47% in 2000. In the same period the MDAX rose by only 14% whilethe DAX even had to accept a drop of 7.5%. Even by comparison withshare price trends of stock exchange-listed European competitors thiswas an above-average result. Consequently, the ERGO share was oneof the best performing insurance stocks in 2000.

� Increase in dividends once again

The positive trend in profits enables the Annual General Meeting topropose a further increase in dividends from € 1.02 to € 1.30 which isan increase of more than 27%. If the Annual General Meeting agreesto this proposal, ERGO has increased its dividends significantly everyyear since it was founded.

� Corporate Governance

I reported to you last year that we were examining the principles laiddown on the topic corporate governance by the policy commissionwith an open mind. Since then, other institutions and organizationshave studied this topic intensively. At the current stage in the opendiscussion on corporate governance ERGO has taken an exemplarystand on the theses laid down by the policy commission. ERGO’scomment on the basic principles of the policy commission ispublished on the internet and can be found under www.ergo.de\corporate-governance.

Positive trend inprofits allows afurther significantincrease in dividends.


� ERGO project on value-based management

In order to be able to pursue the increase of company value evenmore systematically, we started the project “value-based manage-ment” in 2000. The aim of this is to monitor the use of resources sothat productive sectors can be identified and promoted. Sectors wherethere is no contribution to the increase in company value should beoptimized accordingly. The introduction of value-based managementis a process lasting for several years which also results in changes tothe current planning and control instruments.

� ERGO has over 25 million customers throughout Europe

The ERGO Insurance Group has more than 15 million customers inGermany. Throughout Europe roughly 25 million customers placetheir trust in ERGO companies. We are working intensively on usingsystematic customer-management and cross-selling for this hugecustomer basis in order to substantiate growth not only by acquisitionof new customers but also from existing customers. Intra-companycross-selling activities are to be intensified. Furthermore, the oppor-tunities arising from inter-company cross-selling in our young groupare not yet exhausted.

� ERGO synergy effects

At the start of 2000 the ERGO companies united their IT activities inITERGO Informationstechnologie GmbH. The merging of the computercentres will be completed in spring of this year. In order to avoidmultiple developments taking place in future with the applicationdevelopment we took the decision at the start of 2001 to standardizethe application landscapes in ERGO extensively. This will provide thetechnical prerequisites for additional increases in efficiency in theback-office.

The MEAG MUNICH ERGO AssetManagement where ERGO and MunichRe combine their capital investments commenced its entire operativeactivity in 2000. By the end of 2000 assets under management had amarket value of over € 135 billion.

ERGO’s company value is increasedsystematically.


� ERGO’s e-business activities

The ERGO companies are already using the opportunities created bymodern information and internet technologies. We also intend toremain ahead with the application of web-based technologies in thefuture and are using the new technologies for sales support: We canshape the information exchange between customer, agent and com-pany more efficiently using e-business processes. Furthermore, oppor-tunities arising in customer relationship management (CRM) can beused, including e.g. processing of electronic applications, calculationof premiums on the internet, the possibility of implementing electronicnotification of claims and much more. In addition, we are working onour business processes in order to accelerate them and to make themmore economic by applying web-based technologies.

� ERGO concentrates on growth of funds

Whereas markets for classic insurance products are progressingnormally by comparison to the general economic development, theinflows of resources in the fund markets have risen more strongly overthe past and we also expect that it has a substantial potential ingrowth in the future. For this reason, we have been promoting moreintensively than ever the sale of pure fund products and unit-linkedlife insurance policies by the ERGO sales channels since the beginningof 2001. Our MEAG investment company is currently offering 14 ex-cellent investment funds with first-class track records. There will be atargeted expansion in the public funds on offer in 2001. As from thebeginning of 2001 the FondsServiceBank, a newly established jointventure of MEAG and Activest, the investment company of BayerischeHypo- und Vereinsbank, is undertaking the administration of the fundaccounts very economically. Furthermore, we offer our customersmodern unit-linked life insurance products.

� Expected rising demand for private provision as a result of thepension reform

The German parliament has decided to replace parts of the statepension system, which is financed via a pay-as-you-go system, infuture with a fully-funded pension scheme which is to be subsidizedby the state. As soon as the details of the requirements for theseproducts have been established, which are currently being clarified,the ERGO companies will immediately introduce products in accord-

ERGO offers itscustomers first-classfund products.


ance with the pension reform onto the market. Even if the exacteffects for the financial services markets still cannot be estimated, weare confident that we can participate in the additional business in theinsurance industry at least in accordance with our market share.Besides, the ERGO sales organizations can also offer their customersinvestment funds products of the MEAG which are eligible for sub-sidies. Advising our customers on the right provision for old age andthe necessity of private pension products will become the core topic in2001. However, most importantly, it is necessary to explain to peoplethat the aforementioned subsidized old-age insurance schemes aremerely the replacement of a part of the state pension scheme andnot a provision which goes beyond today’s low level and is stillurgently required.

� ERGO is active in company pension schemes

The meaning of the company pension scheme in Germany is becom-ing increasingly apparent by the pension reform since investments indirect insurance policies, retirement schemes (Pensionskassen) andpension funds are to be subsidized in the future even more thanbefore. Consequently, both of the ERGO consulting companies forcompany schemes, HANSA and V.I.V., will be amalgamated andcombine their strengths in the new joint consulting company ERGOPeople & Pensions. As a result of their wide spectrum of competencein advice and administration, the new company will play a leadingrole among the insurance consulting companies.

� Targeted expansion in foreign business

We targeted our expansion of foreign business in 2000. In this con-text, two acquisitions in our target markets of Italy and Poland cameto the fore: With the purchase of Bayerische Vita we are basically verywell positioned in Italy in the strongly growing and lucrative privateprovision business at current premiums. In the future markets ofEastern Europe we have attained an outstanding market position inPoland with the acquisition of the Alte Leipziger Europe (ALE): The ALEhas stakes in insurance companies predominantly in Central andEastern Europe. The largest company in the association has now beenrenamed ERGO Hestia and is third in the Polish market for propertyand casualty insurance. As a result of a cooperation agreement with

Additional growthfrom German pensionreform.


Better market positionin target markets dueto acquisitions.

the Polish PBK bank, the second largest bank in Poland and subsidiarycompany of the HypoVereinsbank Group, ERGO Hestia is also wellarmed for the life insurance business. In addition, we also take aleading market position in the Baltic countries due to ALE companies.

� Targeted investment in training and further education

As a company involved in financial services, the competitiveness ofthe ERGO Group is particularly dependent on the qualifications andmotivation of our staff. At the end of 2000 we employed 27,489employees in-house and salaried field representatives and, further-more, we worked with 23,882 full-time self-employed agents, withoutwhich our success as well as the outstanding profits of the past yearwould not have been possible. Therefore, we continue to invest in thetraining and further education of our staff. We pay particular attentionto the investment in apprentices. At 7.7%, ERGO shows an above-average quota of apprentices in Germany. As a result of the edu-cational measures introduced for our junior employees, the quality ofour customer service is to be increased further, resulting in strongercompetitiveness. The establishment of a separate ERGO managementacademy for our management staff represents an ideal medium forthe onward development of the management culture and providesour executive employees with additional perspectives. Moreover, theexpansion of performance-related remuneration elements and theemployee share-ownership programme, which is highly accepted andis to be continued in 2001, encourages our staff to show commitmentand identify with ERGO.

On the whole, I am convinced that we are on the right track for safe-guarding long-term competitiveness of the ERGO Insurance Group and its companies. I am confident that you, our shareholders, will remainsatisfied with ERGO’s progress.

Yours sincerely,


Human dignity is inviolable

Approval and enthusiasm on the one hand,scepticism and fear on the other: There areonly a few topics in our society that arebeing discussed as emotionally and am-biguously as genetic research and geneticengineering. This has become even moretrue since mapping the human genomemoved into the focus of genetic researchers’interest. The advances made in decodingthe human genome have raised hopes andfears to an equal extent – particularly re-garding tomorrow’s medicine. The fact thatevery scientific discovery in this field raisesfurther questions only shows the complexi-ty of the subject matter. However, expertsagree that genetic research opens up apowerful new potential and will exert asubstantial influence on medicine in thefuture.

This topic is of concern to us all. That iswhy ERGO Insurance Group is taking part inthe public debate. The chances and risks ofpractical genetically-engineered techniquesought to be competently and thoroughlyexamined, advantages and disadvantagesof new diagnostic and therapeutic methodsought to be made clear and be weighed uprationally. This debate must be led by thebasic ethical value which we consider so-cially binding: Human dignity is inviolable.On no account must everything thatappears to be technically feasible or scien-tifically tempting be put into effect withoutthinking.

A new way towards an ancient aim

Easing pain and curing diseases or – evenbetter – protecting people from both: Thisgoal has propelled the progress of medicine

Genetic research also offers prospectsand challenges for the insurance industryand their customers. When talking abouthow people can insure themselves againstdisease or other life risks it is also impor-tant to find out how we want to deal withgenetic tests and their results. It is also truethat genetically-engineered new drugs andthe knowledge about their effects willaffect insurance of the individual (i.e. life,health and personal accident insurance).

and its associated aspects for thousands ofyears. Seen in this traditional way, geneticresearch is just another way of gettingcloser to the same ancient aim.

Biotechnology➔ BiotechnologyThis generic term covers all biochemical methods, micro-

biological and genetic research discoveries aimed atmodifying micro-organisms in order to utilise them tech-nically. It is often concerned with using metabolism, e.g. with bacteria, to create certain products. Biotechnologyhas not been invented recently. Beer, wine, yeast and sourdough are classical results of its use.

Genetic research: prospects and challenges for the insurance industry and their customers


Gregor Mendel’s “Experiments in PlantHybridization” (1865) with peas and beansraised only little interest at the time. It wasonly later that people realized the meaningof his discoveries about heredity. Nowa-days, it is hard to imagine everyday lifewithout the achievements of people whowere determined to deal with the geneticmake-up of plants and animals on a hence-forth scientific basis. Whether it was applesor vines, balcony flowers, dairy cattle orfattened pigs: Cross-breeding yieldednumerous new types and breeds withspecific, desired properties.

This has not always met with everybody’sgeneral approval as recent controversialdebates about so-called “Genetically Modi-fied Food” have very clearly shown. Foodproducts from genetically modified plantscould contribute to solving the problem ofworld famine, preventing deficiency diseasesand reducing the use of pesticides. How-ever, it may also contain risks for mankindand the environment of which we are notyet aware. For this very reason, consumersmust decide for themselves what kind offood they wish to eat.

Human genetics raise hopes and fears

In medical research, Mendel’s approach ledto James Watson’s and Francis Crick’s dis-covery of the DNA-double helix in 1953 asthe basis of heredity of all living things. Inthe 1970s the intervention in the geneticmake-up of bacteria was carried out suc-cessfully for the first time. The birth of thefirst test-tube baby in 1978 finally resultedin a new chapter in the history of humangenetics as did the recent success indecoding the human genome to a largedegree in an extensive project representedby Francis Collins and Craig Venter. Thehopes connected to both events were –and still are – high as are the understand-able fears.

The fight against diseases, disabilitiesand physical deficiencies has never beenjust a matter of rationale: Many medicaldiscoveries were accompanied by anintense debate on ethical and moral conse-quences for the basic social conditions. Wehave to carefully consider the possible con-sequences before we start intervening inthe complex blueprint of human life. If wewish to make use of new ways of healingwe must be open to the progress of know-ledge. However, implementing new waysand methods requires being conscious ofrisks and of one’s responsibility.

Gene➔ GeneA section of genetic information (→DNA). Every single

gene consists of about one hundred different triplets formedfrom the same four bases – adenine (A), cytosine (C), guanine (G) and thymidine (T). The special sequence ofthese bases forms the genetic code. A human-being hasaccording to most recent estimates about 30,000 differentgenes. All the organism’s cells contain the same genes. Thedifference between a retinal and a muscle cell, however, isthat only some genes are used to meet the respectivespecial tasks of the cell.


Hard to imagine practical medicinewithout genetics

Nowadays, countless patients benefit frompractically applied results of genetic re-search. Some examples: The treatment ofdiabetes mellitus requires human insulin.In former times it was mostly obtainedfrom pig’s pancreas; since 1982 it hasbeen produced from genetically modifiedbacteria cultures which makes it purer,more efficient and less prone to sideeffects compared to its predecessors.Discoveries based on genetic engineeringwere also employed in developing haema-tinic drugs for patients suffering from renaldysfunction and hormones against micro-somia. The inexpensive and relatively low-risk vaccines used for hepatitis B, whichhave been used since 1986, would not beavailable without the techniques of geneticengineering.

ment. The general wish is that if it werepossible to produce drug profiles for individ-ual patients, costly clinical trials for licens-ing new drugs could be reduced to fewer,more targeted trials. This would allow newdrugs to come onto the market more rapid-ly and be available for the sick more quickly.

Our current knowledge about humangenes has had an effect on medical prac-tice for quite some time. Checking theamniotic fluids or other prenatal diagnosticmethods can reassure many parents-to-be,particularly in cases where certain hered-itary predispositions are known in the fami-ly. Some genetic engineering methodsoccasionally even hit the headlines in themass media, e.g. when DNA analyses areused for tests such as determination ofpaternity or decent. DNA profiles havebecome a widespread means in forensicmedicine because it helps to identifycasualties and to convict offenders.

The possibilities offered by geneticdiagnosis as regards hereditary diseasesare less spectacular but just as important tothe fate of those affected. For instance, atest can determine beyond all doubt thepredisposition to Chorea Huntingtondisease because this disease of the centralnervous system, which still is incurable, isone of the few hereditary illnesses whichcan be put down to a single gene. Andwhat is more: There is almost 100% likeli-hood that the person affected will contractthe Chorea Huntington disease – which isalso exceptional.

Pharmaco-geneticists are currentlyresearching how an individual’s geneticinheritance affects the body’s response todrugs as many people’s genetic make-upcontains a type of gene which alters theeffects of certain substances. The aim ofthe scientists is to customize drugs forevery individual patient to provide moreeffective therapeutic effects and preventundesired side effects or even false treat-

Pharmaco-genetics➔ Pharmaco-geneticsThe most tiny of genetic differences between people

may be responsible for a patient’s reaction to a certaindrug (e.g. with regards to the occurrence of undesired sideeffects). Pharmaco-genetics aims at identifying suchdifferences and at producing drugs that take the patient’sspecial genetic features into account and thus work moreefficiently.



Normally, however, diseases are basedon a number of causes and influenced bygenetic predispositions as well as by theenvironment and lifestyle factors. In fact,

Many questions remain unanswered

Genetic research development is dynamic.New discoveries enter the experts’ data-bases every day. Nevertheless, there arestill large gaps in our knowledge on human

there is a certain genetic predisposition toa stroke or heart attack but the personsaffected can significantly reduce the risk ofdeveloping the disease by adopting anappropriate lifestyle including, for example,doing a lot of exercise, sports activities andadopting a low-fat diet. Genetic anomaliesdo not necessarily have an effect on ourwell-being. It is also important in how farwe assume responsibility towards our ownbody which, of course, is up to the individ-uals themselves.

So-called “predictive” genetic tests mayprovide a lead to a disease that a personmay possibly develop under certain cir-cumstances in the future but they neitherpredict whether the affected person willactually contract the disease nor the age atwhich onset will occur and likely severity,which is why genetic tests are controversial.Besides, genetically-determined diseases,at least up to now, often lack therapeuticand preventive treatment.

DNA➔ DNA“Deoxyribonucleic acid” is the genetic make-up of all

living things (→Genome) and is situated in the nucleus ofevery cell. It is made of two twisted cords called “doublehelix”. The DNA’s spiral structure is due to intermolecularhydrogen bonds.

genetic information. Furthermore, for everyquestion which is answered, there is astring of other questions which then leadson to more questions. For example: Howdo the genes which have now been“mapped” interact with each other, or howdo environmental factors influence ourgenetic predisposition?

Due to the fact that there are still largegaps in our knowledge we have to becareful about the discoveries made to date.This also means that clear national and,above all, international regulations mustprevent any abuse in the results of re-search. The Federal Government’s plannedNational Ethical Council – as well as theexisting advisory bodies in ministries andparliament – will have to fulfil a particularlyimportant and responsible task in this high-ly sensitive area of conflict because geneticresearch must be integrated into a bindingsystem of ethical and moral principles mar-ked by the respect for human dignity.


Ethical and moral principles as thestandard of our deeds

ERGO, the second largest German primaryinsurer, adheres to the ethical and moralprinciples as the standard of our deedswhich is in the customers’ interest whohave opted for a non-compulsory systembased on solidarity. Whereas differences inrespect of personal risks are irrelevant tonational compulsory insurance, we insureour customers according to their individualrisks. This applies to life insurance, occu-pational disability as well as to health andlong-term care insurance which is why weface new challenges with genetic research,such as information arising from genetictests or evaluating new diagnostic andtherapeutic possibilities.

a motor own damage policy immediatelyafterwards in order to claim for damages. A jeweller, who is just experiencing a break-in, will not find any company readyto insure him against this theft. The sameis true for risks concerning life and healthinsurance.

It is utterly essential for a non-compulsorysystem based on solidarity that insurers arein a position to calculate possible risks. It isonly under this precondition that they canoffer their customers optimal insurancecoverage at a fair rate. Two examples:When purchasing a health insurance policya healthy person can expect to pay a lowerpremium than a person of the same ageand sex suffering from an allergy. Some-body who has a dangerous job or hobby

The basis of every private individualinsurance is that it can only cover uncertainrisks. If an event relevant to eligibility forbenefit is very likely or even certain tohappen in the near future the insurer cannottake the risk. For example, if you have justcaused a car accident you cannot take out

will have to pay higher premiums for his orher life and occupational disability insur-ance than a customer with a “normal” riskin his or her private and working life.

Genome➔ GenomeThe entire genetic information of a cell. Analyzing the

genomes of e.g. micro-organisms offers numerous possibili-ties that can be applied in →genetic engineering. In the“Human Genome Project” scientists all over the world areworking on the decoding of the human genetic make-up.First of all, genes were “mapped out” i.e. located on theDNA double helix. Due to this knowledge combined with alot more information single genes can be identified. Thenthe structure of every single gene was defined throughanalyzing the exact sequence of bases (“sequencing”). This research work was marked by an exciting competitionbetween public and private scientific institutions. In April2000 a private US-research centre declared they had nearlycompleted the sequencing. In June 2000 the public researchcentres followed suit. Since February 2001, the research hasbeen made available to the public. The medicine industryexpects genome analysis to explain pathogenesis of diseases and, consequently, to explain new ways oftreating and fighting them.



Proper differentiation instead of unjust discrimination

It is a question of proper differentiationrather than unjust discrimination accordingto all known factors about the likeliness ofcertain risks to occur. There was a reasonbehind the fact that legislation ruled thatinsurance companies are entitled to ask fordetails on the state of health when sellinga life or a health insurance policy in orderto ensure that the insurer has the sameknowledge of the risks to be covered asthe policyholder. In the interest of cus-tomers belonging to a non-compulsorysystem based on solidarity, private insurershave to demand higher premiums or inindividual cases even have to refuse pro-spective policyholders in case previousdiseases or results of health-checks indi-cate a higher health risk.

The reason for this so-called principle of “information symmetry” between theinsurer and the person to be insured isobvious. For example, whoever knows thathe or she is suffering from an incurabledisease would most probably take out ahigh but nonetheless favourable term lifein favour of his/her family but would dis-regard a pension scheme. If this were notthe case, such risk shifts would have to bepaid by the private policyholders them-selves: Rates would rise for everyone –possibly to such an extent that many peo-ple would question whether or not thiselementary coverage is still affordable.

In accordance with the logical conse-quence of the principle of informationsymmetry, ERGO maintains that peopleapplying to take out a private insurance arenot allowed to conceal existing results ofexaminations – even if they were from agenetic test. Whoever is aware of his/herown risks must disclose them truthfully. It istrue that in isolated cases this may lead to

rejecting an insurance application but thisis the only feasible way for a private insur-ance company to assess the expected risksand to calculate an adequate coverage fora group of people as large as possible at a reasonable rate.

Gene therapy➔ Gene therapyThe attempt to treat a disease by direct intervention in the

cell’s genetic information. Due to its uncertain prospects ofsuccess and its unpredictable consequences in the long run,gene therapy today is a controversial subject among expertsas well as in politics and society.

Against compulsory genetic tests

However, ERGO does its utmost not toforce anyone to take a genetic test as apre-requisite for obtaining insurance cover.We reject compulsory genetic tests becauseaccording to inviolable human dignityeverybody has the right to deny – not onlyto others but also to himself or herself –access to his/her innermost parts. Peopleshould not to be forced to look into theirown future if they are – for whateverreasons – afraid of it. ERGO maintains theprinciple of informational self-determination:Every person has the right not to know.

This also means genetic tests cannotand must not become a precondition forpeople’s insurability. By the way, for theERGO Insurance Group this does not meananything else than to continue with itspractice to date. All prospective policy-holders are asked to truthfully inform usabout their state of health. In cases ofspecial risks we confer with the doctor in


attendance and we require a medicalcertificate – comparable to a check-up –for sums assured above a certain level.

Guaranteed confidentiality

For a long time, it has been a well-estab-lished fact for insurance companies to beobliged to handle their customers’ verysensitive data with an extreme sense ofresponsibility prescribed by the strict Ger-man data protection law. ERGO guaranteesprotection of their customers’ privatesphere when dealing with personal informa-

This is the reason why we propose thatgenetic test results be separated from allother insured’s files and sent directly to thecompany’s consultative doctor where theyshould be kept in a special access-controlledarchive. Insurance agents and brokersshould not be able to see genetic testresults. It is just as important that the insur-ance company may only use the knowledgethat stems from a policyholder’s genetictest for risk or benefit calculations. This canalso mean: This information may not beused in connection with insurance policiese.g. for a member of the same family.

Genetic test➔ Genetic testAnalysis of →DNA sections. Used e.g. to detect a person’s

predispositions to certain diseases (“predictive genetictest”). Only in few cases the forecast based on the person’spredisposition to actually develop a disease can be ven-tured with a probability bordering on certainty. The effect ofgenetic predispositions is often eclipsed by other influencessuch as how people treat their own body. Scientists use the so-called “genetic screening” to examine the relationbetween certain diseases and their predispositions amongsections of the population. In cases of particular symptomswhich occur, genetic tests can also be applied for diag-nostic purpose.

tion at all times. Knowledge about our cus-tomers’ genetic predispositions must besafeguarded just as carefully.

There is still time to benefit from future possibilities

Medical research in general and humangenetics in particular are developing at highspeed. Therefore, the state and societymust keep all options open to ensure thatthe vast majority of people are actually ableto benefit from scientific progress. To create



a sound political basis for future regula-tions, all arguments must be weighed upthoroughly and objectively which, ofcourse, takes time.

What we need is constructive commu-nication between all social and politicalforces. ERGO appeals to all people involvedto assume their immense responsibility forthis sensitive as well as complex debate.The course of these discussions will cer-tainly not only find answers but will alsoraise new questions. How do we cope withthe possibility of predicting that a person islikely to develop a rare illness for whichthere is no cure? What is it like for some-one to know about their own geneticpredisposition to an illness which they arelikely to develop under certain circum-stances?

In view of the dynamic advances madein genetic research and engineering, theinsurance industry must also face newquestions. Which role may or must thecustomer’s hereditary factors play in thecontext of a policy contract? Will the growingknowledge about genetically-based predis-positions to certain health risks have animpact on insurance rates – and will privateinsurance companies, for instance, intro-duce products with varying premiums?What effect does the knowledge about thecustomer’s possible genetic anomaly haveon payment in case of illness, need of careor occupational disability? And what does

this knowledge mean with regards to bene-fits payable at death or in endowmentcases? What about the elements of privateprovisions which are of such tremendoussocio-political importance? And what will

Genetic engineering➔ Genetic engineeringThe generic term for all methods aimed at modifying

genetic information (such as splitting, recombining or trans-ferring genetic sections). Used e.g. in pharmacology in orderto “programme” bacteria in a way that enables them toproduce certain drugs. The so-called “rotten-proof tomato” isalso a (controversial) result of genetic engineering.

happen to people who do not want toknow what kind of future is “coded” in theirgenes?

The issue of genetic engineering is fartoo important to be merely concerned withbias and fear. ERGO Insurance Groupassumes this responsibility: We are goingto bring our expertise to bear in the publicdebate.


Consolidated economic growth

The upturn in economic growth in Germanystrengthened in the year 2000. A growth of 3.0% was achieved after real grossdomestic product increased by only 1.6%in 1999. Foreign trade remained the drivingforce. The reasons for this were mainlystrong growth in North America and thefavourable development in the rate ofexchange for exports to dollar areas. Inaddition, domestic demand was stimulated.

The growth lost impetus by mid-yearbecause the drastic rise in crude oil pricescaused the price of heating oil and fuels to increase significantly. Furthermore, theburden of the tax reform motivated forecological reasons also played a role.Finally, the fall in value of the euro whichwas mainly responsible for the price in-crease in energy resulted in the rise in con-sumer prices in Germany by 2.1%.

Foreign purchasing value of the eurounder pressure

The value of the euro fell against the USdollar in the second year of the EuropeanMonetary Union. On 26 October 2000 thecommon currency reached its lowest levelof 82.3 US cents for 1 euro. The EuropeanCentral Bank maintained that the euro wasundervalued when based on fundamentaleconomical data. Together with the CentralBanks of North America, Japan and theUnited Kingdom it attempted to stabilizethe rate with foreign exchange marketinterventions. However, these interventionsonly had a short-term success.

Slight improvement in unemployment rate

The economic upturn increased thedemand for labour. As in previous years,new jobs were mainly created in the serv-ice industries. An annual average of 3.9million people were registered as un-

employed, around 200,000 fewer than inthe previous year; the rate of unemploy-ment was 9.6%. An average of 38.5 million people were employed in Germanyin the year 2000 which is nearly 600,000or 1.6% more than the previous year.However, the job market is still uneasy inEast Germany. Although the new federalstates have made considerable economicprogress since the reunification ten yearsago, their rate of unemployment was17.4% which was almost twice as much asin western parts of Germany.

As more than 75% of premiums of Ger-man insurance companies are generatedby private households, the development ofdisposable income is crucial for the insur-ance industry. Burdens caused by risingenergy prices were met by the reduction in personal income tax, increased childbenefit payments as well as the reducedcontributory rates for social security. Thismeant that disposable incomes increasedby 2.9%.

Turbulent capital markets

Due to various economic and monetaryconditions throughout the world, the devel-opment of the capital markets was markedby tensions. As a result of the increasingdanger of inflation and the weak euro theEuropean Central Bank slightly increasedthe bank rates on several occasions. On the whole, interest rates remained at amoderate level.

The bond market in Germany was marked by special effects apart from theincrease in bank rates by the EuropeanCentral Bank. Earnings totalling billionsflowed into the federation’s reserves as aresult of the auction of UMTS licenses formobile communications as well as fromthe third part of the privatisation of GermanTelekom. This resulted in a lower demandfor loans which had a depressing effect onthe rate of interest.

The German insurance industry in the year 2000

German insuranceindustry in an overallfavourable economicenvironment.


In the year 2000, there was an irregulardevelopment in the share markets. Follow-ing a distinct rise at the beginning of theyear, the German DAX reached an all-timehigh with 8,136 points in March. Duringthe course of the year it fell to 6,110points. The closing rate of 6,434 on31 December 2000 meant an annual lossof 7.5%, whilst the EURO STOXX recordedminus 2.7% when measured for the entireyear. The development of the growth shares in the new market was even moredramatic with even greater falls: The market index NEMAX dropped by almost70% since March 2000. During the sameperiod the US technology stock exchange – NASDAQ – fell by 52%.

Important reform projects: tax and pension reforms

The topics which dominated political andpublic discussion in Germany were the taxreform passed in the summer as well asthe pension reform.

The reduction in corporation tax from40% to 25% is an important step inachieving internationally competitive ratesof taxation. As from 2002, capital gains willbe exempt from tax and can then provide asubstantial incentive in breaking up partic-ipations and cross-shareholdings in Ger-many. Furthermore, the full credit systemof corporation tax will be replaced by thehalf income method in 2002: Private shareholders must then only declare half of the dividends of a limited company asearnings and pay tax on it. However, infuture it will not be possible for private shareholders to offset corporation tax already paid by the company against owntax liabilities; this marks a fundamentalchange in German tax law.

Draft for discussion concerningpension reform

During the second half of the year 2000the Federal Government presented a draftfor discussion concerning the reform of thestate pension system. Apart from structuralreforms and reductions in benefits, thisdraft envisages the set-up and subsidizingof fully-funded individual and companypension schemes. This reform concept is,compared to the tradition of earlierattempts, the first concept which makesuse of the chances of a fully-funded basis in the light of the demographic development.

The discussion concentrated on sub-sidizing privately funded pension schemesinstead of cuts in benefits. In the eyes ofthe Federal Government this ought to close the gap which is brought about bydropping the state pension level in order to stabilize the rates of contribution. Theimportant provision of protecting againstdisability and occupational disability wasalmost entirely forgotten during the publicdebate. In particular, employees who wereyounger than 40 on 1 January 2001 mustmake more private provisions as a pensionprovided in case of occupational disabilitywas deleted from the catalogue of publicbenefits at this stage. However this neces-sary private risk provision is not subsidized.

On the whole, the reform concept of theFederal Government has rather a substi-tuting effect rather than a supplementingcharacter. It does not, however, even fill thegaps generated in the state pension system.Under normal circumstances, the pensionreform is not adequate to provide a reason-able pension. Considerably higher pro-visions are needed for this.

Pension and taxreforms exert a positive influence onthe insurance industry.


The insurance industry grows by 2.2%

The favourable economic climate onlyprovided suppressed impulses to the insur-ance industry in the year 2000. Premiumsincreased by 2.2% to € 131 (128) billion.

sank by 43% to € 5.6 (9.7) billion com-pared with 1999; single-premium policieswere down by 9% to € 6.6 (7.2) billion. Incomparison with 1999 life insurance com-panies also had to accept a clear drop inthe number of the new policies written:Approximately 7 million new policies werewritten, representing a fall of 32%.


For the first time since 1995 property andcasualty insurers once again registered apositive trend in premiums. Earnings frompremiums rose only slightly compared tothe marked increase in benefit paymentsand claims for losses. The insurance bene-fits, including provisions for claims incurredand future insurance claims as well as premium refunds, increased by 7.9% to € 160 (148) billion.

Life insurance in the shadow of the“boom” in 1999

The development of life insurance for theyear 2000 cannot be judged without takinga look at the exceptional business year1999. The outstanding growth recorded inthe previous year was due to the FederalGovernment’s plans to tax earnings fromlife insurance policies. This caused manycitizens to bring forward their private provi-sion which had anyway been planned.

In comparison to this growth impetus,new business for the year 2000 wasunderstandably lower. In addition, con-sumers were waiting for the pensionreform. Both of these special effects meantthat current premiums from new business

% ’98 ’99 ’00

12.5

10.0

7.5

5.0

2.5

Growth of premiumsin the German life insurance

A normal year like 1998 is a more suit-able comparison. When comparing thesetwo years, new business as well as premi-ums both increased by 14.4% in 2000.Premiums rose by 2.3% to € 60 (59) bil-lion compared with 1999. There was onceagain a sharp increase in insurance pay-ments: Total payments to policyholders ortheir descendants rose by 12.5% to € 50(44) billion, representing an economicallyimportant contribution towards the provision for old-age.

Continued growth in private healthinsurance

The development of private health insur-ance was strongly influenced by the“Health Reform 2000” which also resultedin substantial changes for private healthinsurance. Above all, private health insur-ance has been marked by the introductionof the premium surcharge to 10% as from1 January 2000 to finance premium reliefin old age. On the one hand, it made privatehealth insurance more able to adapt to thefuture by topping up provisions for old-age.On the other hand, premium rates in newbusiness had to be increased accordingly.

German life insurancecompanies with significantly less newbusiness than in theexceptional year of1999.

% ’98 ’99 ’00

5.5

4.4

3.3

2.2

1.1

Growth of premiumsin the German insuranceindustry


The private health insurance companies’premium income increased by 4.1% to € 20.7 (19.9) billion in the year 2000. This included € 2.0 (2.0) billion for privatelong-term care insurance. Paid-out insur-ance benefits rose by 3.0% to € 13.4(13.0) billion. Total benefits of the privatehealth insurance companies to customers,i.e. costs for insurance cases and transfersto the actuarial provision as well as to theprovision for premium refunds amountedto € 24.0 (23.9) billion.

0.9% in the previous year. On the otherhand, property insurance suffered a furtherfall in premiums by 1.3 % to € 12.2 (12.4)billion after already experiencing a drop of2.1% in 1999. As in previous years, thiswas due to industrial non-life insurancewith a continued dramatic 17% fall inpremiums for fire insurance to only € 1.0(1.2) billion. One reason for this is thestructural change from being an industrialto a service and information society withdifferent requirements for insurance. Pricecompetition will become even moreintense in a narrower market. There wasmoderate growth in comprehensive build-ing insurance as well as in general liabilityinsurance whereas premiums for compre-hensive household-and-contents insurancefell slightly. The personal accident and legal expenses insurance companies bothrecorded an increase in premiums by 2.5%.

For the first time again, property andcasualty insurers record increasedpremiums

For the first time in five years, premiums inthe property and casualty insurance indus-try increased once again. Compared to1999, gross premiums rose by 1.2 % to € 48.3 (47.7) billion. This is primarily dueto motor insurance, the largest branch forproperty and casualty insurance, wherepremiums increased by 2.8 % to € 20.3(19.8) billion despite fierce competition andthe fact that premiums had dropped by

Growth of premiums in German private health insurance

German private health insurers record solid growth.

Development of premiumsin German property andcasualty insurance

% ’98 ’99 ’00

1.6

0.8

0.0

– 0.8

– 1.6

% ’98 ’99 ’00

5.0

4.0

3.0

2.0

1.0


Claims expenses for property andcasualty insurance dropped by 0.4% to € 40.6 (40.8) billion when compared withthe previous year. In spite of increasedpremiums, the claims ratio for motor insur-ance hardly altered and amounted to 104(105) %. Claims incurred increased by 2.0 % to € 21.2 (20.8) billion. Conse-quently, the underwriting loss remained onpar with the previous year at the high levelof € 1.9 billion. There were less claims fornon-life insurance for the year 2000 asthere were no major natural catastrophes.Claims incurred dropped by 7.0 % to € 9.1(9.8) billion. For personal accident andlegal expenses insurance, there was amoderate increase in claims expenditure of 1.0% and 0.5% respectively.

The insurance industry active on the internet

The use of modern information and com-munication systems is a must for the insur-ance industry. In particular, the internetopens up new selling and service possibili-ties. A study by the German InsuranceIndustry Association (GDV) shows that inthe year 2000 more than 70% of Germaninsurance companies were represented onthe internet and a further 17% were plan-ning to go online. The websites mainly offerinformation on the company as well as theproduct range. The chance of selling poli-cies via the internet is not offered on alarge scale due to the high level of adviseneeded. An EU guideline on electronicbusiness, which came into effect in themiddle of 2000, equates the digital sig-nature with a hard-copy signature. Thismeans more legal security but the guide-line is still to be adopted in German law.

From a global player to the specialist

Apart from the increased use of moderninformation and communication technolo-gies, the trend towards the globalization ofthe financial and product markets has ledthe German insurance industry to increaseits focus on international markets in theyear 2000. The role as a service providerfor industrial and commercial customersrequires an integration in the internationalinsurance market. The range of Germaninsurance companies continues to stretchfrom the global-operating company to thesmall company which is very heavilyregionally biased.

The year 2000 led to some companiesrepositioning themselves on the market bymerging, purchasing or entering co-opera-tions due to the dwindling growth possi-bilities and the pressure on profit margins.However, following a study of the Institutefor Actuarial Science from the University ofCologne in 2000 the degree of concentra-tion on the German insurance market is, bycomparison to the rest of Europe, still notparticularly high.

High technical loss continues for motorinsurance: € 1.9 billion.



MANAGEMENT REPORT


ERGO Insurance Group companies

ERGO Versicherungsgruppe AG unitesunder a single roof the insurers VICTORIA,Hamburg-Mannheimer, DKV and D.A.S.which are household names on the Germanmarket as well as the numerous direct andindirect companies abroad. Furthermore,MEAG MUNICH ERGO AssetManagementand ERGO Trust conduct asset managementfor the Group and third parties. ERGO is thesecond largest primary insurance group inGermany; it is also Germany’s third largestinsurer abroad.

Munich Re (Münchener Rückversiche-rungs-Gesellschaft) is our largest share-holder, holding directly and indirectly62.9% of the shares in ERGO Versiche-rungsgruppe AG. The remaining ERGOshares are widely distributed and no othershareholder holds more than 5%.

VICTORIA P&C, VICTORIA Life, VICTORIAHealth, VICTORIA Re, Hamburg-Mann-heimer Life, Hamburg-Mannheimer P&C,Hamburg-Mannheimer Legal Expenses,DKV Health, D.A.S. Legal Expenses, D.A.S.P&C, Vorsorge Life, MEAG MUNICH ERGOAssetManagement and ERGO Trust are partof the domestic companies in the ERGOInsurance Group. We are represented as aninsurance company in 22 countries abroadand have 51 subsidiaries and 5 branches.

New Participating Interests

DKV purchased the Levob Gezondheids-zorgverzekering N.V., Leusden, on 1 January2000. The company was since renamedN.V. Verzekeringsmaatschappij Rijnmond II.With this acquisition, ERGO strengthenedits position in the Netherlands and as Europe’s leading private health insurer.

As at 1 July 2000, ERGO Versicherungs-gruppe AG acquired the Alte LeipzigerEuropa Beteiligungsgesellschaft AG, of Bad Homburg v. d.H., which strengthenedsubstantially the market position of theERGO Insurance Group in Poland and theBaltic states. In the fourth quarter, our position in Poland and Latvia was expandedwith further acquisitions.

In order to round off its market positionin Belgium, Hamburg-Mannheimer P&Cacquired a majority stake in the insurancecompany LION BELGE S.A., of Brussels, as at 2 October 2000 where it had held a minority interest since 1990. This hasmeant that we have strengthened our position in the Belgian property insurancebusiness.

As at 1 December 2000, the BBV ItaliaS.p.A. in Milan was purchased and, therefore, also the Gruppo Bayerische.Bayerische Vita, a rapidly expanding Italianlife insurer as well as the non-life insurerBayerische Assicurazioni are part of theGruppo Bayerische.

Management report

Consolidated companies

The ERGO InsuranceGroup is the secondlargest primary insurance group inGermany. 45 domesticand 75 foreign companiesare included in the IASconsolidated accounts.


Companies included in theconsolidated accounts

The ERGO Versicherungsgruppe AG’sconsolidated accounts include 45 domesticand 75 foreign subsidiaries. The Alte Leip-ziger Europa Beteiligungsgesellschaft AG aswell as the BBV Italia S.p.A., including theirsubsidiaries, were included in the con-solidated companies for the first time. 15other companies, mainly in the field ofcapital investments, were also included forthe first time. Furthermore, in accordancewith IAS rules 54 company-owned specialfunds of the ERGO Versicherungsgruppe AGor its subsidiary companies were includedin the Group’s consolidated accounts forthe first time. In 1999, the shares in thesespecial funds were shown in the balancesheet as “other securities – available forsale”.

In addition, 20 domestic and 18 foreigncompanies were valued as associatedcompanies in accordance with the equitymethod. 122 subsidiaries and 44 associatedcompanies which are outside the insurancesector and whose effect on the assets,finance, and earnings position is insignifi-cant, were not included in the consolidatedaccounts.

More detailed information on con-solidated and associated companies areincluded in the overviews on pages 142 to144. The methods of balancing accountsand valuations are explained in the Notesto the Consolidated Annual Accounts onpages 85 to 95.

The ERGO Versicherungsgruppe AG’sconsolidated accounts for the year 2000were audited by BDO Deutsche Warentreu-hand Aktiengesellschaft, of Munich, andgiven an unqualified audit report, repro-duced on page 141.

ERGO’s own specialfunds were consolidated for the first time in 2000.


Management report

Performance of the ERGO Insurance Group

As one of the largestinsurers, ERGO isrepresented in 23 European countries.Our customers count onthe commitment andcompetence of 51,000employees.

Principle activity and segments

ERGO Insurance Group acts as a primaryinsurance underwriter providing all classesof life, annuity and health insurance andvirtually all types of property and casualtyinsurance as well as legal expenses insur-ance. ERGO is also a provider of reinsur-ance. In addition, we are also active ininsurance brokerage, asset managementand financial and other services.

We steer our insurance businessaccording to the business segments of lifeinsurance, health insurance, property andcasualty insurance (not including legalexpenses insurance), legal expenses insur-ance and financial services. We report onthese segments on pages 38 to 48. Report-ing on the secondary segments, dividedinto domestic and foreign business, followson pages 49 to 53.

ERGO – Number Two in the Germanprimary insurance market

The four well-known brand-name insurancecompanies VICTORIA, Hamburg-Mannhei-mer, DKV and D.A.S. united under the common roof of the ERGO Versicherungs-gruppe AG in 1997. In Germany, we havemore than 15 million customers in almostall insurance business classes. We obtain90% of our premium income from business with private customers, and 80%stems from insurance of the individual (i.e. life, health and personal accident insurance). We have strong sales power asa result of our numerous sales channelsand almost 24,000 self-employed agents.

MEAG MUNICH ERGO AssetManagementGmbH has been part of the ERGO InsuranceGroup since 1999. Together with ourspecialist for property services, venturecapital and private equity, ERGO Trust,MEAG provides institutional and privateinvestors asset management services andproducts in addition to managing theinvestments for the companies of ERGOand Munich Re. This allows us to cover thefield of insurance, provision and financial

services comprehensively with our opera-tional companies and to use cross-sellingopportunities.

Market position in Europestrengthened by acquisitions

In Germany as well as abroad, privatecustomers are our main target group.

During the financial year 2000, ERGOexpanded in Europe to a considerableextent as a result of acquisitions made inthe growth markets such as Italy andPoland. In Italy, we achieved an outstand-ing position in the rapidly expanding lifeinsurance market by purchasing the Baye-rische Vita and reached a leading marketposition in the future growth markets ofEastern Europe with the acquisition of theAlte Leipziger Europa Beteiligungsgesell-schaft.

ERGO is market leader in private healthinsurance and in legal expenses insurancein Europe.

Successful cooperation with banks inGermany and abroad

ERGO companies relied on cooperatingwith banks for many years. For instance,VICTORIA has a cooperation agreementwith Bayerische Hypo- und Vereinsbank,Germany’s second largest bank. Both DKVand Hamburg-Mannheimer have workedtogether for a long time with the DresdnerBank.

ERGO trusts this tried and tested form ofcooperation both in Germany and abroadwhere our companies profit from theirbank partners. For example, an exclusivecooperation with the PBK bank in Polandwas signed at the end of 2000. The PBKbank is part of the HypoVereinsbank Groupand is Poland’s second largest bank.


ITERGO is well on the way to achievingsubstantial synergyeffects in IT.

In Austria ERGO has been successfullycooperating with the Austrian cooperativebanks (ÖVAG) via the VICTORIA companiesfor some years, and we also operate jointcompanies in several Central Europeancountries. Hamburg-Mannheimer, BankAustria (belonging to the HypoVereinsbankGroup) and the insurer Wiener StädtischeVersicherung all have a 33,3% stake in theAustrian UNION Insurance.

Structural changes within ERGO

We centralized a number of functions inorder to strengthen the ERGO Versiche-rungsgruppe AG as a strategic manage-ment holding.

The financial division of ERGO wasconcentrated in the holding. This will enableus to achieve an improved controlling ofinvestments and financial services as wellas a tighter risk management.

In the same way, the management ofthe entire foreign interests was centralizedto establish ERGO as force to be reckonedwith on the growth markets in Europe. Uni-form management and profit responsibilityin accordance with uniform criteria are aprerequisite for this goal and with this stepwe are taking the expansion of our foreignbusiness in 2000 into account.

Members of the foundation “Remembrance, Responsibility and Future”

Back in April 2000, the insurance com-panies of ERGO joined the foundation“Remembrance, Responsibility and Future”(Erinnerung, Verantwortung und Zukunft)and paid their share to the German Insur-ance Industry which has funded a total ofalmost € 250 million. The main aim of thefoundation is to provide compensation tovictims of forced labour under NationalSocialism on the one hand and to redress

the financial damages suffered on theother if this has not already taken place inthe past with compensation payments bythe Federal Republic of Germany. Followingthe set-up of the foundation pending law-suits in various courts throughout the USAwere rejected, in which – among others –VICTORIA Life, part of the ERGO InsuranceGroup, was involved.

The International Commission on Holo-caust Era Insurance Claims (ICHEIC), theGerman Insurance Industry Association(GDV) and the foundation are currentlynegotiating in respect of a binding proce-dure which deals with claims and requestsspecific to insurance. As soon as the German parliament has stated legal closurefor German companies and the ICHEICreleases the requests received, the ERGOinsurance companies will then untertake afinal assessment of the requests receivedby them in accordance with the establishedguidelines as laid down by the organiza-tions.

Convergence of IT

The ITERGO Information Technology wasfounded at the end of 1999. Concentrationof IT resources, implementation of theadvantages of size and improvement of thetransfer of knowledge are the main aims ofthis joint venture. Back in September 2000,the computer centre based in Hamburgwas moved to Düsseldorf. In March 2001,the computer centre in Cologne will betransferred to Düsseldorf. The conversionto a single IT application landscape alsocommenced in 2001. The goal is to pro-duce one common standard for all ERGOcompanies concerning the use and deve-lopment of application programmes.


Strategic partnership with Deutsche Telekom

In April 2000, a joint venture with DeutscheTelekom was initiated in order to set up aninternet market place for insurance andfinancial services. This is now close tocompletion. The virtual market place withthe name “avanturo” is a further step in ourstrategy for the internet and e-businessand we selected the concept of the marketplace on purpose. Beside products fromERGO companies, offers from other compa-nies will also be found in avanturo. Thisenables us to use the transparency of theinternet in order to present a confidentpicture of our strength as insurer andfinancial services provider geared towardsservice and quality. The advantage for theconsumers is clear: They not only receivethe best advice but are also offered theproduct which best suits their needs.

Strong growth in premiums

The ERGO Insurance Group’s grosspremiums written reached € 12.7 (11.9)billion, 6.2% more than in 1999. Foreignsubsidiaries accounted for € 1.7 (1.2)billion. This sharp increase of 42% ismainly due to the acquisitions made inEastern Europe and Italy which, however, –dependent on the time of purchase – onlyhad a partial effect on the figures for theyear under review. Foreign business as a

share of premiums amounts to 13 (10) %.It will rise sharply next year once the pur-chased companies are consolidated for the whole year. If this had been the case in2000, our foreign business as a share ofpremiums would have amounted to 18%.

Our premium income is distributedaccording to business segments as follows:

Premiums of the life insurance com-panies grew by 5.3% to € 5.4 (5.1) billionafter the exceptional year of 1999. Thisgrowth mainly stemmed from abroad and,here in particular, as a result of the ac-quisitions of new affiliated companies.Domestic premiums amounted to € 4.84(4.79) billion (+1.0%). Life insurance stillremains the largest business segment ofERGO accounting once again for a 43%share in total premiums.

Premiums received in health insuranceincreased by 6.7% to € 3.8 (3.6) billion. InGermany, the health insurance companiesof ERGO grew by 4.2%, nearly at the samerate as the market-average. Growth wasmuch stronger abroad, mainly due toacquisitions. ERGO continues to be marketleader in private health insurance in Ger-many and Europe. The share of premiumsfor health insurance within ERGO isunchanged at 30%.

Management report

Performance of the ERGO Insurance Group

ERGO Insurance Group 1999 2000€ million € million

Gross premiums written 11,928 12,669

Net investment income 5,290 7,234

Benefits to customers (net)* 11,945 14,135

Operating expenses (net) 2,163 2,247

Profit on ordinary activities before taxes 831 1,151

Taxes on income 368 335

Net profit for the year 467 804

* including policyholders’ dividends

Substantial growthabroad and above-average growth inGermany have resulted in premiumsrising by 6.2% to € 12.7 billion.


Registering an increase of 8.0% to € 2.8(2.6) billion, property and casualty insur-ance (not including legal expenses insur-ance) accounted for the strongest rise inpremiums. The share in total premiums of the ERGO Insurance Group grew to 22(21) %. For the first time in several yearsour premiums from German motor insur-ance recorded an increase. Premiumadjustments and new business was thesource of this positive development. Premiums rose sharply abroad due to theacquisitions in Eastern Europe and in Italy.

For legal expenses insurance, whereERGO is also market leader in Germany andEurope, premiums increased by 5.0% to € 696 (662) million. This business segmentconstitutes 5 (6) % of all premiums ofERGO. Stagnating domestic premiums wereoffset by higher premiums from abroadwhich rose by 15.7% to € 260 (225) mil-lion. Meanwhile, the foreign share of thisbusiness segment accounts for 37%.

First-time consolidation of special funds

ERGO is producing end-of-year accounts in accordance with International Account-ing Standards. As from the year 2000,company-own special funds must beconsolidated in end-of-year accounts asper SIC 12.

Units of special funds were shown atcurrent values under the position of “othersecurities – available for sale” in the pre-vious year. Only profits distributed to theowners of special funds affected the profitand loss account. For the year underreview, special funds are to be treated asdirect investments: Current income fromfunds or profits or losses from the disposalof assets affect net income by the totalamount. Consequently, the consolidation

First-time consolidationof special funds leads tosignificant increases innet investment income,provision for deferredpremium refunds andnet profit.

of special funds will generally result in higher but more fluctuating investmentincome in the future. In the year underreview, asset positions held by the specialfunds are specified directly in the appro-priate balance sheet items. Values for 1999were not adjusted.

€ 88.8 billion investment portfolio

The investment portfolio of the ERGOInsurance Group increased by 4.4% to € 88.8 (85.0) billion in 2000.

The largest amount of investments with80.5 (83.6) % is constituted by the othersecurities with € 71.5 (71.1) billion; this is 0.5% more. This, in turn, is made upfrom securities available for sale at € 70.2(69.6) billion and securities held tomaturity at € 1.2 (1.4) billion. Securitiesavailable for sale constitute 79.1% of theinvestment portfolio. The portfolio of fixed-interest securities grew by 30.3% to € 43.6(33.4) billion. Variable-yield securities, onthe other hand, fell by 26.4% and amountto € 26.7 (36.2) billion. These are made of€ 25.0 billion in shares and share funds.The strong shift is a result of the first-timeconsolidation of special funds and the factthat the funds’ assets are specified directlyin the appropriate balance sheet items,whereas the units of special funds hadbeen stated as variable-yield securities –available for sale in the previous year.

Financial derivatives were used to asmall extent only. We adhered to the basicprinciples compiled by the Federal Super-visory Office for the Insurance Industry andthe German Insurance Industry Association(GDV). Trading with options primarily servedto increase earnings. Swaps were used forhedging interest rates. We limited risks byadequate risk control models and bycareful selection of our partners.


Continued rise in net investmentincome

There was a considerable increase in ERGOInsurance Group’s net investment income,rising by 36.8% to € 7.2 (5.3) billion. Themain contributing factors for this welcomerise are the special funds which were con-solidated for the first time as well as a stockmarket year which provided investors withsignificant opportunities to achieve marketprofits, particularly in the 1st quarter of 2000.As a result of this the net income from thedisposal of investments rose considerably;namely to € 3.1 (0.8) billion. Current income dropped to € 4.5 (4.8) billion.

Fluctuations in value of the othersecurities

ERGO · 2012. 10. 31. · ERGO Insurance Group in summary See inside folding flap for brief information regarding the Group and ERGO’s shares. In a special report within this annual

Documents