Company Perspectives:
ERGO is the No. 1 in health and legal expenses insurance in Europe; in Germany we are the No. 2 in personal accident and life. Expansion in foreign business through acquisitions abroad, especially in growth markets like Italy, Central and Eastern Europe is our goal. ERGO is also gearing towards the growing investment bonds market and has an excellent position with MEAG. With ERGO People & Pensions we have an outstanding position in the market for corporate pension schemes.
ERGO Versicherungsgruppe AG is the management holding company of Germany's second biggest direct insurance group serving more than 25 million customers throughout Europe. ERGO unites under its roof a consortium of four leading groups of insurance companies: the VICTORIA group and Hamburg-Mannheimer which sell a broad range of life and casualty insurance coverage to individuals, groups and businesses; DKV Deutsche Krankenversicherung AG, Europe's number one private health insurance; and D.A.S. which specializes in legal expense insurance and has a leading position in that market in Europe. In addition to 45 domestic subsidiaries, the ERGO group consists of 75 foreign subsidiaries in 22 European countries which contribute roughly 18 percent of total sales. ERGO is majority-owned by the world's largest reinsurance company Munich Re, which owns 91.7 percent of the company's shares. Bavarian bank HypoVereinsbank holds a 5 percent interest. The remaining 3.3 percent are publicly traded at the Frankfurt/Main stock exchange.
ERGO's Roots in 1853
ERGO Versicherungsgruppe AG was created in 1997, when four insurance companies combined their businesses and organized it under the umbrella of a new holding company. These four companies, however, all had a long history of their own before they came together. The oldest of the four was the insurance company VICTORIA, which was incorporated in Berlin in September 1853 as Allgemeine Eisenbahn-Versicherungs-Gesellschaft, a company that offered insurance coverage for possible damage connected with railway transportation such as fire or accidents. In 1861, the company started carrying life insurance, which became its strongest business division. In 1875, the company was renamed VICTORIA zu Berlin Allgemeine Versicherungs-Actien-Gesellschaft, which reflected the broadened focus of a general insurer. By the turn of the century VICTORIA had become the biggest life insurer in Germany and by 1913 the company was unsurpassed by any European life insurance company. In 1904, VICTORIA founded a new subsidiary that offered insurance against fire which was gradually extended to burglary, flood, accident liability, and car insurance. In the 20th century VICTORIA also started expanding its activities geographically, and by 1914 it did business in most European countries, except Great Britain. By 1932, VICTORIA accounted for four-fifths of all foreign premiums collected by German insurance companies. The two World Wars, as well as hyperinflation and the economic depression in between, took a big toll on VICTORIA: its financial assets were devalued, the company was cut off from markets abroad, it lost major markets in eastern Europe, and finally its Berlin headquarters. Hence the company was back to its earlier strength by the time its 100th anniversary rolled around in 1953. With its new headquarters in Düsseldorf, VICTORIA participated in the strong economic growth period of the 1960s, established subsidiaries in Austria, the Netherlands, Spain and Portugal, and kept growing through the 1970s by adding health insurance to its portfolio. In the early 1980s, the company survived a second attempt at a hostile takeover--the first one happened in the 1920s--and at the end of the decade restructured by creating a holding company for its three major operations in life, health, and property insurance. Resisting the industry trend to branch out into financial services, VICTORIA started cooperating with Bayerische Vereinsbank, a major German bank.
It was in 1961 when VICTORIA acquired a majority share in Deutsche Automobil Schutz Allgemeine Rechtsschutz-Versicherungs-AG (D.A.S.), a small insurance company specializing in legal insurance. D.A.S. was founded in Berlin as Deutsche Automobil Schutz AG in 1928 and received a concession as an insurance company in 1935. In 1941, the company started offering legal insurance in connection with transportation, and beginning in 1954 expanded its legal insurance services to other areas. Four years later D.A.S. opened a subsidiary in Austria and was taken over by VICTORIA in 1961. In 1978 the company founded D.A.S. Versicherungs-AG, a subsidiary which started offering other insurance programs besides legal insurance, including car, accident, liability, and different types of property insurance. In 1995, the company set up a legal insurance subsidiary in the Czech Republic before it became part of the ERGO group in 1997.
The third insurance company that became part of the ERGO group was Hamburg-Mannheimer, which was first incorporated as Vita Versicherungs-Actien-Gesellschaft in 1899. In 1902, the Mannheim-based firm received a national concession to sell private insurance. After a decade of sluggish business the company was taken over by Versicherungsgesellschaft Hamburg, another insurer, in 1911. A year later the company moved headquarters to Hamburg and changed its name to Hamburg-Mannheimer Versicherungs-Actien-Gesellschaft. In 1923, due to hyperinflation, the company's assets were almost completely eradicated. Two years later Hamburg-Mannheimer took over health insurance firm Bürgerliche Versicherings-AG. After the stock market crashed in New York in 1929, Hamburg-Mannheimer's parent company got into financial turmoil and sold its shares in the company to the Swedish reinsurance group Svea in the following year. In 1932, Hamburg-Mannheimer expanded its health insurance activities when the company acquired an 80 percent majority in Berlin-based Deutsche Krankenversicherungs-AG (DKV), the fourth company that would later form the ERGO group. When the German government decided to deny any compensation for war-caused damages for companies over 25 percent foreign-owned in 1942, Svea sold its Hamburg-Mannheimer share packet to the Donner bank. The company's headquarters was left untouched by the war and the business was carried on with little interruption. However, the company changed hands again several times within the next few years until a relatively stable owner structure was achieved in 1951 when the German insurance groups Allianz and Munich Re each acquired a 36.4 percent share in Hamburg-Mannheimer while its old parent company Svea was back as a shareholder with 26.4 percent. In 1957, Hamburg-Mannheimer took over the existing insurance contracts from Hamburg-based life insurer Hansa Lebensversicherung A.G., which was then liquidated. In the booming 1960s, the company's financial assets passed the DM10 billion mark. In 1974 Hamburg-Mannheimer lost its share majority in DKV when the health insurer's capital base was increased by Allianz and Munich Re and ventured into legal insurance in 1979. In the late 1980s, the company acquired a ten percent stake in Austrian insurer Union Versicherungs-AG. In the 1990s, Hamburg-Mannheimer started cooperating with DKV and Dresdner Bank AG in cross-selling financial and insurance products through its new subsidiaries Hamburg-Mannheimer Versicherungs-und-finanzierungs-Vermittlung GmbH (VFV) and Hamburg-Mannheimer Investment Trust. Two years later the company's ownership structure changed again when Allianz lowered its share to 20 percent and Munich Re became Hamburg-Mannheimer's majority owner. In 1993, Munich Re also acquired a 26 percent stake in the company from Swedish Skandia group that was formerly Svea. Five years later the company restructured its operations and became part of the newly formed ERGO group.
DKV was founded in 1927 in Berlin and started out with a solid capital base of 2 million Reichsmark and 15 employees eager to sell health insurance. The company developed a reputation for innovation. In 1936, the company started using sophisticated mathematics to calculate their premiums. In the 1950s, DKV was the first health insurer to introduce health insurance plans with flexible elements that customers could choose from and provided extended security against cancellation for chronically ill patients. In the 1980s, DKV launched "Medi Card," a plastic card that speeded up insurance claim processing with health care providers. In the 1990s, the company developed a program that kept the cost of premiums manageable for older customers. Not least this drive to innovate made DKV Germany's number one health insurer. However, after Germany's leading direct insurer Allianz ceased its distribution cooperation for health insurance with DKV, the company lost roughly one third of its new business.
The ERGO Merger in 1997
The German and European insurance market of the 1990s was characterized by deregulation. Around 1993, the geographical borders fell for the European insurance industry and insurers were allowed to offer their services within the "common European insurance market" if certain standards were met. Around the same time the European Common Market superseded the authority of Germany's governmental agency which had approved tariffs and conditions for many insurance products and had rigorously overseen consumer-friendly policies. As a result of the deregulation the market became increasingly competitive, product transparency declined, and prices fell. The European insurance industry reacted with a number of mergers.
On July 4th, 1997, the four insurance companies VICTORIA, Hamburg-Mannheimer, DKV, and D.A.S. announced the formation of a new group--the ERGO Versicherungsgruppe. Despite their considerable size and market share, none of these companies seemed to be in a strong enough position to stay competitive in the European market in the long run. Hamburg-Mannheimer's product portfolio leaned heavily towards life and accident insurance while only ten percent of sales came from property insurance. This unbalanced mix made the company more vulnerable to market volatility, and that was even more true for DKV and D.A.S. In addition, their exclusive sales force which marketed only products in their specialized niches--health insurance and legal insurance--increasingly came under cost pressure. VICTORIA had a more diversified product mix and a stronger market position, but was, as a publicly traded company, prone to unwanted takeovers by possible foreign buyers who wanted a strong foothold in the German market.
From that situation, the idea was born to merge the four companies into a new entity. A driving force behind the ERGO merger was reinsurer Munich Re, which held 23 percent in VICTORIA and 80 percent in Hamburg-Mannheimer. However, the merger was carried out in a rather unusual way: by merging the two major holding companies, Hamburg-Mannheimer AG and VICTORIA Holding AG. The result was not--as is most common--the merger of the parties' operative business divisions, but the formation of a consortium of four equal partner companies under the umbrella of the new management holding company ERGO Versicherungsgruppe AG, headquartered in Düsseldorf. Since the four partners had built strong brand names, they were kept in place and every company kept marketing their products under their respective brand. The only visible change for their customers was the additional note: "A company of the ERGO Versicherungsgruppe" included under the logo in all correspondence and marketing communication. After the merger had been carried out, ERGO Versicherungsgruppe AG took the place of VICTORIA Holding AG on the German MDAX stock index beginning in February 1998.
Focus on Synergy and International Growth After 1997
Right after the merger, ERGO started reorganizing its operations to create cost-saving and growth-enhancing synergy between its member companies. To synchronize ERGO's policies in similar markets, DKV received a major share in VICTORIA's health insurance subsidiary, while D.A.S. took over a majority share in Hamburg-Mannheimer's legal insurance arm. The integration of claims management was finalized in 2000 and was done exclusively by VICTORIA for all casualty insurers of the ERGO group. In the same year the group's joint IT services firm, ITERGO, was established. In the mid-term, ERGO's management also expected additional growth from cross selling between the ERGO members.
Another potential area of synergy was financial asset management and investment banking. In the late 1990s, the borders between the insurance and banking markets began to break down. Insurance companies not only had to manage their own financial assets, but realized that offering vehicles for re-investing paid-out life insurance could be the next step in their value chain. To strengthen the ERGO group's investment power, the company together with Munich Re established MUNICH ERGO AssetManagement GmbH (MEAG) in 1999, in which ERGO held 40 percent. Besides the management of those companies' financial assets, MEAG also offered its services to private and institutional investors. ERGO Trust GmbH, a MEAG subsidiary, offered real estate financing services, mainly to institutional investors.
The second major growth strategy besides creating positive synergy within the ERGO group was international expansion. With the acquisition of Spain's fifth largest private health insurer Previasa S.A. in 1998, health insurance became a second large revenue source abroad, besides legal insurance. ERGO's position in that segment was further strengthened when the company took over Dutch Levob Gezondheidszorgverzekeringen N.V., Spanish NORDICA, and German Alte Leipziger Europa with a strong foothold in Poland and the Baltic, in 2000. A health insurance sales office was also established in China. The takeover of Alte Leipziger Europa, a company that was also active in accident and property insurance, resulted in a foreign sales boost for ERGO in those two areas. Additional ERGO acquisitions included Italian property and casualty insurer Bayerische Assicurazioni and Italian life insurer Bayerische Vita, and a majority share in Lithuania's third largest insurance firm PREVENTA. As a result of the company's international growth efforts, the percentage of foreign sales of the total increased from about eight percent in 1998 to roughly 18 percent in 2000. ERGO expected the introduction of the EURO in 2002 to further increase competition among Europe's direct insurers.
Between 1998 and 2000, ERGO managed to grow faster than the German insurance industry as a whole, which was slowing down. ERGO group's strategic goal was to become Germany's number one direct insurer for individual customers and to increase foreign sales to about 20 percent of the total. A strategic joint venture with German telecommunication leader Deutsche Telekom was established in 2000 to create an online portal for insurance and financial services. Another strategic growth area was the increasing demand for private retirement plans and institutional pension funds. Through a share exchange transaction with Allianz and a public offer to buy ERGO shares, Munich Re was able to increase its share to 91.7 percent in 2001 and made HypoVereinsbank ERGO's exclusive distribution partner.
Principal Subsidiaries: Hamburg-Mannheimer Versicherungs-AG; DKV Deutsche Krankenversicherung AG (99.9%); VICTORIA Versicherung AG (92.47%); VICTORIA Lebensversicherung AG (99.5%); Hamburg-Mannheimer Sachversicherungs-AG (99.99%); MEAG MUNICH ERGO AssetManagement GmbH (40%); VICTORIA Krankenversicherung AG; VICTORIA Rückversicherung AG; D.A.S. Versicherungs-AG; Vorsorge Lebensversicherung AG; D.A.S. Rechtsschutzversicherungs-AG; Hamburg-Mannheimer Rechtsschutzversicherungs-AG; ERGO Trust GmbH.
Principal Competitors: Allianz AG; AMB Generali Holding AG; AEGON N.V.
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