Annual Report 2008 ERGO Insurance Group

.#3, !!3 .,#.1 Overview of ERGO Insurance Group 2008 2007 Change previous year (%) Total premiums € million 17,711 17,385 1.9 Gross premiums written € million 16,578 16,401 1.1 Expenses for claims and benefits € million 13,896 15,888 – 12.5 Investment result € million 2,871 5,351 – 46.4 Result before impairment losses of goodwill € million 584 1,070 – 45.4 Consolidated result € million 92 781 – 88.2 Investments € million 108,247 104,258 3.8 Technical provisions (net) € million 98,939 95,108 4.0 Equity € million 3,734 5,081 – 26.5 Full-time representatives 21,709 20,772 4.5 Salaried employees 31,508 29,127 8.2 Group earnings per share in accordance with IFRS € 0.99 9.78 – 89.9 Dividend per share € – 13.25 – With premium income amounting to € 17.7bn, ERGO ERGO has the right sales channel for every client: is one of the major insurance groups in Europe. World- Over 21,000 self-employed sales representatives, wide, ERGO is represented in more than 30 countries staff working in direct sales, as well as insurance and concentrates on Europe and Asia. In Europe, brokers and strong cooperation partners – both in ERGO is no. 1 in the health and legal expenses insur- Germany and abroad – look after our clients. We main- ance segments, and in its home market of Germany tain a far-reaching sales partnership with the major it is among the market leaders. 50,000 people work European bank UniCredit Group, both in Germany full-time for the Group, either as salaried employees as well as in Central and Eastern Europe. or as self-employed sales representatives. ERGO is part of the Munich Re Group, one of the ERGO offers a wide spectrum of different types of leading risk carriers worldwide. Under its umbrella, insurance and other services, and, as a reliable and both primary insurers and reinsurers capitalise on fair partner, intends to be the permanent no. 1 choice opportunities to turn risk into value. The joint asset for all provision and insurance needs of its clients. management and fund company MEAG manages 40 million clients currently place their trust in the the investments of the Munich Re Group amounting services, expertise and financial strength provided to approximately € 175bn, of which € 108bn are by ERGO and its companies. In Germany, 20 million accounted for by ERGO. Munich Re holds a 94.7 % clients place their faith in the strong brands of stake in ERGO. D.A.S., DKV, Hamburg-Mannheimer, KarstadtQuelle Insurance and Victoria. 2008 ERGO Insurance Group Group Annual Report Contents 3 Letter to shareholders by the Chairman of the Board of Management 6 Report of the Supervisory Board 12 Report by the Board of Management and Supervisory Board on Corporate Governance within the ERGO Insurance Group Management Report 16 ERGO Insurance Group 23 Governing bodies 25 Parameters 32 Business performance 32 Overview and key figures 40 Business segment development 49 Financial position 54 Other success factors 59 Prospects 65 Risk report 76 Shares in ERGO Versicherungsgruppe AG Consolidated 78 Consolidated balance sheet as at 31 December 2008 Financial Statements 80 Consolidated income statement for the financial year 2008 81 Statement of recognised income and expense 82 Group statement of changes in equity 83 Consolidated cash flow statement for the financial year 2008 84 Segment reporting – classification according to business segments 90 Segment reporting – classification according to regional segments 93 Notes to the Consolidated Financial Statements 203 Selected participating interests 207 Auditor’s report 208 Declaration of the Board of Management 209 Addresses 2 ERGO Insurance Group Dear shareholders, Dr. Torsten Oletzky Chairman of the Board of Management The past financial year was an exciting but in many ways difficult year. The ERGO Versicherungsgruppe AG global crisis on the financial markets brought disruption of unexpected propor- tions to politics, business, companies and consumers. ERGO, too, has certainly felt the effects of the crisis. By contrast to the exceptionally good previous year, the investment result fell by 46 percent to 2.9 billion euros – despite our risk-conscious investment policy. Our technical business was once again excellent: at 90.9 percent, our combined ratio in non-life insurance was not only clearly below our long-term target figure but also ranked among the top of our competitors yet again. This is the result of our careful risk selection and first-class claims management, as well as consider- able improvements in cost management. Indeed, as regards administration expenses in Germany, all segments showed positive developments. However, premium income only rose moderately by 1.9 percent to 17.7 billion euros. The significant fall in single premium business in life insurance resulting not least from the financial market crisis made itself felt here. All in all, with a profit of 92 million euros it can be said that we have so far got through the crisis rather well. Making a profit after encountering such a year is quite an achievement and reflects well on our integrated risk management. It must be emphasised in this context that we did not in any way lower our high standards regarding the strict interpretation of accounting regula- tions we are accustomed to. Despite all the crisis management required in such a period, we did not lose sight of the future and our long-term targets. For example, we continued to make our business more international as planned. The ERGO Group currently earns almost one quarter of its premium income outside of Germany. Interna- tional business recorded strong organic growth again in 2008, especially in Poland, Turkey and the Baltic States. An important step towards strengthening our position in the bancassurance segment in the long term was made by acquiring a majority stake in Bank Austria Creditanstalt Versicherung, even though it initially put a strain on our result. This means that we are now no. 3 in the Austrian life insurance market and are using Vienna as a base to control ERGO Insurance Group 3 sales via UniCredit-Banken in Central and Eastern Europe; the first policies were sold in Slovenia in 2008. Our new companies and joint ventures were also successful in Asian markets, such as South Korea and India. In our home market we have started the “Continual Improvement in Competi- tiveness” project, which aims at further enhancing the administration expenses and acquisition cost ratios in Germany. To this end, we have developed a number of measures; we took special care to ensure that the cost savings are not at the expense of quality and service. The focus of companies and the pub- lic was notably on the necessary cut of 1,800 jobs connected with the measures. It was a difficult process for the executive management of the ERGO Insurance Group and the Group Works Committee to come to an agreement on a comprehensive package which, among other things, lays down that redundan- cies due to operational reasons have been ruled out for either back-office or salaried field representatives until 31 December 2012. I am confident that the savings and structural changes, for example with respect to sales, will further improve the competitiveness of ERGO over the next few years. In the year under review we also increased the effectiveness of our sales channels. For example, we worked at full steam to ensure that the integrated ERGO broker sales channel went operative in January 2009. Geared towards the needs of the customer, it offers brokers various ERGO brand products and services from a single source. We intend to extend further our successful direct insurance. A very positive development in this context is our reorganisation of the joint shareholdings in the financial services segment together with Arcandor AG shortly before the end of the year. In the process, we managed to acquire the remaining shares in KarstadtQuelle Insurance, Germany’s most popular direct insurer. At the beginning of 2009 we took over travel insurer Europäische Reise- versicherung from Munich Re thereby creating a competence centre for all products related to travel. At the same time, we extended our range of products by adding the entire spectrum of assistance services. As we have pursued a strategy of equipping our products with service features for years in order to change from being a mere cost reimbursement company to a service provider, we see this as a very positive development. Product innovations in all segments support the various sales channels. In good time for the introduction of the so-called health fund in Germany in 2009, we launched a new and flexible tariff generation for health insurance onto the market. In life insurance we concentrated on gearing our product range more towards investment-type products. Our main focus here was on providing a dynamic hybrid product. Furthermore, we continue in our efforts to make our products even more transparent and easier to understand for our customers. 4 ERGO Insurance Group We also consistently implemented our strategy of optimising our capital struc- ture by paying out an exceptionally high dividend totalling one billion euros and by means of financing through borrowing. Once the capital markets have calmed down again, we will also look into the increased use of hybrid capital. As you can see, we have rigorously pursued our long-term goals again in the year under review. Our benchmark continues to be high: we wish to achieve a significant increase in our premiums and profits by 2012 while, at the same time, continuously improving quality and service. We made good progress in this respect in 2008 and will do our utmost again in 2009 to firmly establish ERGO among the top major international insurance groups in Europe by 2012.

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