School of Social Sciences

Master in Business Administration (MBA)

Postgraduate Dissertation

The contribution of Information Systems and their impact on

companies. The case study of Ergo Group

Georgios Angelopoulos

Supervisor: Prof. Aristidis Bitzenis

Patras, Greece, September 2020 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

© Hellenic Open University, 2017 The content of this thesis/dissertation along with its results is owned by the Hellenic Open University and his/her author, where each of them has the sole and exclusive right to use, reproduce, and publish it (totally or partially) for educational or research purposes, with the obligation to make reference to the thesis’s title, the author’s name and to the Hellenic Open Universtiy where the thesis / dissertation was written.

The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Georgios Angelopoulos

Supervising Committee

Supervisor: Co-Supervisor: Aristidis Bitzenis Barbara Myloni

Patras, Greece, September, 2020 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

I would like to express my sincere gratitude to my supervisor, Mr Aristidis Bitzenis, for his patience, motivation, enthusiasm and immense knowledge. His guidance helped me in all the time of research and writing of this thesis.

I would also like to thank Ms. Barbara Myloni for her support and guidance in this dissertation.

I dedicate the present dissertation to all people who support me.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Abstract

The introduction of new technologies in companies increased their productivity, reducing government spending and creating new consumer habits. The use and development of information systems have greatly changed the operations of companies, increasing their profitability and efficiency. In order to be effective and profitable in international markets, businesses need advanced information systems. In modern markets, mergers and acquisitions are a growing phenomenon because of the need to raise capital. Companies have many benefits from mergers and acquisitions. They can operate in different sectors, become more competitive and consolidate their position in an ever-changing environment.

This thesis aims to examine the impact of information systems in companies approaching the global economic phenomenon of mergers and acquisitions, and in particular in the field of private insurance in the Greek domestic economy. We presented related issues and other key concepts that uniquely define the insurance sector. We will be approaching the field of "Merger and Acquisitions”, their different forms, their advantages, and limitations that may affect the companies that are being involved in such a process. A literature review of the technology of information systems is presented with analyzed their contribution and impact on the business world

Later in this thesis, we present the acquisition case study of the firms: “ERGO-Property” and “Casualty”, “ERGO-Life” and “ATE” as the most significant merger in the Greek insurance sector. The main target of our study is to answer the question if the usage of information systems of the above companies proved to be financially beneficial to themselves or not through the merging procedure. We made a qualitative analysis on the financial figures for each of the aforementioned entities separately. At the end, we are studying the importance and contribution of information systems to the new company.

Keywords

Mergers and Acquisitions, Insurance Companies, Information Systems, Information Technology,

Postgraduate Dissertation 5 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Περίληψη

Η εισαγωγή των νέων τεχνολογιών στις επιχειρήσεις επιτρέπει την αύξηση της παραγωγικότητας, μειώνει τις κρατικές δαπάνες και δημιουργεί νέες καταναλωτικές συνήθειες. Η χρήση και η ανάπτυξη των πληροφοριακών συστημάτων άλλαξε σε μεγάλο βαθμό τη λειτουργία των εταιριών αυξάνοντας την κερδοφορία τους και την αποδοτικότητα τους. Για να συμμετέχουν αποτελεσματικά και κερδοφόρα στις διεθνείς αγορές, οι επιχειρήσεις χρειάζονται αναβαθμισμένα πληροφοριακά συστήματα. Στις σημερινές σύγχρονες αγορές οι συγχωνεύσεις και οι εξαγορές αποτελούν ένα φαινόμενο το οποίο βρίσκεται σε έξαρση, εξαιτίας της ανάγκης που έχει δημιουργηθεί για τη συγκέντρωση κεφαλαίων. Οι εταιρείες αποκομίζουν τεράστια οφέλη μέσα από την διαδικασία των συγχωνεύσεων και εξαγορών έχοντας την δυνατότητα να επεκταθούν σε διαφορετικούς τομείς της οικονομίας διασφαλίζοντας με αυτό τον τρόπο την συνεχή ανάπτυξη τους σε ένα μεταβαλλόμενο περιβάλλον.

Στην παρούσα διπλωματική εργασία παρουσιάζουμε την επίδραση των πληροφοριακών συστημάτων στις εταιρείες προσεγγίζοντας το παγκόσμιο οικονομικό φαινόμενο των συγχωνεύσεων και εξαγορών και ειδικότερα στον τομέα της ιδιωτικής ασφάλισης στην εγχώρια ελληνική οικονομία. Επίσης παρουσιάζονται τα βασικά χαρακτηριστικά και η περιγραφή του νομοθετικού πλαισίου που διακρίνονται στον ασφαλιστικό τομέα. Αναλύουμε την ορολογία των συγχωνεύσεων και εξαγορών, αναφέρουμε τα πλεονεκτήματα όπως και τους περιορισμούς που μπορεί να δημιουργήσουν στις επιχειρήσεις που δραστηριοποιούνται σε μια τέτοια διαδικασία. Παρουσιάζεται μια βιβλιογραφική ανασκόπηση της τεχνολογίας των πληροφοριακών συστημάτων και αναλύεται η συνεισφορά και η επίδραση τους στον κόσμο των επιχειρήσεων.

Στην συνέχεια αναλύουμε την μελέτη περίπτωσης της ERGO Ασφαλιστική, μιας από τις μεγαλύτερες αγορές και συγχωνεύσεις που έχουν πραγματοποιηθεί στην Ελληνική οικονομία, η οποία ολοκληρώθηκε το 2017 με την συγχώνευση των ERGO Ασφαλιστική Ζημιών, ERGO Ζωής και της ΑΤΕ Ασφαλιστικής. Μέσα από τη σύγκριση κάποιων βασικών μεγεθών για την καθεμιά, αλλά και της ανάλυσης των πληροφοριακών συστημάτων των εταιρειών που συγχωνεύθηκαν, δίνεται απάντηση στο ερώτημα εάν η επίδραση των πληροφοριακών συστημάτων έχει όφελος για τις παραπάνω επιχειρήσεις ή όχι. Παράλληλα

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

μελετάτε η σημασία και η συμβολή των πληροφοριακών συστημάτων στην νέα εταιρεία και η συνδρομή τους στην κερδοφόρα πορεία της.

Λέξεις – Κλειδιά

Αγορές και Συγχωνεύσεις, Ασφαλιστικές Εταιρείες, Πληροφοριακά Συστήματα, Τεχνολογίες Πληροφορικής

Postgraduate Dissertation 7 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Table of Contents

Abstract ...... 5 Περίληψη ...... 6 Table of Contents ...... 8 List of Figures ...... 10 List of Tables ...... 11 List of Abbreviations & Acronyms ...... 12 1. Introduction ...... 13 1.1 The Global Perspective of Mergers & Acquisitions ...... 13 1.2 The purpose of the study ...... 13 1.3 Research methodology ...... 14 1.4 Chapters of the Dissertation ...... 14 2. Literature Review on Mergers & Acquisitions, Insurance and Information Systems ...... 16 2.1 Merger and Acquisition ...... 17 2.1.1 The Concept of Merger and Acquisition ...... 17 2.1.2 Motives of Mergers and Acquisitions ...... 21 2.2 Introduction to Private Insurance ...... 25 2.3 Information Systems ...... 28 2.3.1 Introduction to Information Systems ...... 28 2.3.2 Information System Types ...... 30 2.3.3 Information systems and their success ...... 31 2.3.4 Information Systems in the Insurance Sector ...... 32 2.4 Conclusions - What we have learned ...... 35 3. Research Methodology of the study ...... 38 3.1 Analysis of the most frequent research methods...... 38 3.2 The purpose of this study and the selected analysis ...... 40 3.3 Advantages and Limitations of the case study analysis ...... 41 4. Case Study – ERGO INSURANCE GROUP ...... 42 4.1 The Profile of ERGO Group ...... 42 4.2 The merging companies of the group ...... 45 4.2.1 ERGO Property and Casualty ...... 45 4.2.2 ERGO Life ...... 47 4.3 ATE Insurance ...... 48 4.4 Services provided by ERGO Insurance ...... 50 5. Case Study Analysis and Critical Discussion ...... 52 5.1 Financial Analysis and Information Systems of ERGO-Property and Casualty ...... 52 5.2 Financial Analysis and Information Systems of ERGO Life ...... 56 5.3 Financial Analysis and Information Systems of ATE Insurance ...... 58 5.4 Financial Analysis of ERGO Insurance Group before and after merging ...... 62 5.5 The impact of information systems in ERGO Insurance after the merging ...... 65 6. Conclusions ...... 74

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Bibliography ...... 80

Postgraduate Dissertation 9 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

List of Figures

Figure 1: Global M&A activity by region. Source: http://statista.com Figure 2: Solvency II framework. Source: https://underwriter.gr Figure 3: Information systems triangle. Source: https://www.researchgate.net/figure/The- Information-Systems-Triangle_fig7_258600399 Figure 4: The main directions of information technologies application in the Insurance business. Source: G N Kaigorodova et al 2018 Figure 5: Number of insurance companies in Greece during the years 2007-2016. Source: Data from research Figure 6: ERGO at a glance. Source: https://www.ergo.com/en/Unternehmen/Portrait-ERGO- Group Figure 7: Gross registered premiums of Ergo Insurance at 2017 after the merging. Source: Data from research Figure 8: Insurance products provided by Ergo information systems Figure 9: Sales percentages of insurance premiums for the merged companies via information systems. Source: Data from research

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

List of Tables

Table 1: History of Ergo

Table 2: Top ten insurance companies in Greece

Table 3: Financial Data of ERGO Property at 2016. Source: Data from research

Table 4: Financial Data of ERGO Life at 2016. Source: Data from research

Table 5: Financial Data of ATE Insurance at 2016. Source: Data from research

Table 6: Financial Data of ERGO after merging. Source: Data from research

Postgraduate Dissertation 11 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

List of Abbreviations & Acronyms

IS Information Systems IT Information Technology M&A Merger and Acquisition SCR Solvency Capital Requirement MCR Minimum capital requirement

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

1. Introduction

1.1 The Global Perspective of Mergers & Acquisitions

Over the last decade, mergers and acquisitions (M&A) have had a great role in helping to understand economic events and trends in many countries. Globalization and technological changes lead companies to adopt the mergers and acquisitions strategy in order to ensure their growth. According to Bitzenis, Papadimitriou and Vlachos (2012) the international trade has been expanding faster than world output in terms of GDP, and the increase in foreign direct investment has exceeded the growth of world output as well as exceeding trade. As for M&A, while these led to some disappointing results in the form of decreased shareholder value in the past, today’s deals are enjoying greater success at increasing shareholder value.

Mergers and acquisitions are on the rise. During 2018, mergers and acquisitions (M&As) throughout the world are estimated at $1.2 trillion in value, the highest rate that ever recorded. The financial stability of the European Union, the rapid economic growth in Asia, the tax reforming in the USA, and the increase in cash offers from international markets strengthen the motivation of companies for mergers and acquisitions.

As the world economies open and as globalization becomes more apparent, acquiring a company can now be, in and of itself, a strategic avenue to build or maintain a market position.

1.2 The purpose of the study

Nowadays due to the global adverse economic conditions and the economic destabilization of Greece, the companies that operate inside the Greek market are unable to cope and operate as autonomous organizations, either because they do not have the necessary funds or because they finally cannot withstand the increasingly competitive environment. This situation also affects insurance companies trying to find a solution to this problem through mergers and acquisitions. This thesis aims to find answers to the research question of whether mergers and acquisitions benefit businesses, and in particular whether or not they improve their performance, by examining the case of the merger of ERGO and ATE Insurance at 2016.

Postgraduate Dissertation 13 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Information systems (IS) can boost growth in companies of all sizes. Today information systems play a major role in the resilience of a financial organization to the global and competitive market (Karim, 2011). The main objective of this thesis is to analyze and study the impact of information systems in the new company after the merge of ERGO and ATE Insurance.

1.3 Research methodology

For the purposes of this thesis, both Greek and foreign literature on the structure of insurance undertakings, financial analysis, mergers and acquisitions, as well as information systems which are the main subject of the analysis, as well as various useful web pages were reviewed. We chose the case study as a research method in order to highlight the importance of information systems and their impact on companies.

1.4 Chapters of the Dissertation

The first chapter of the dissertation provides the reader with a general overview of the subject.

The second chapter is a literature review on the subject, setting out important terms of private insurance, the issue of mergers and acquisitions, the advantages and disadvantages of merger and their impact on competition policy. Also in this chapter, we present a literature review on Information Systems and Information Technology and their impact on companies.

In the third chapter, we describe and present the research methodology we have chosen to follow in this dissertation.

The fourth chapter describes the ERGO Insurance by showing the profile of the company, the insurance services provided by ERGO Group, a description of the companies that merged to create the ERGO and the use of Information Systems at ERGO Group.

The fifth chapter presents the case study of the creation of ERGO Insurance Company, from the merger of the ERGO-Property and Casualty, ERGO-Life and the Agricultural Insurance (ATE Insurance). We want to analyze the merger based on given economic results and decide

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

if the merger of the companies is success or failure. In addition, we want to prove that the information systems of the new company have a great impact on the success of the company.

Finally, in the sixth chapter, we present the overall conclusions of this dissertation.

Postgraduate Dissertation 15 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

2. Literature Review on Mergers & Acquisitions, Insurance and Information Systems

Mergers and acquisitions (M&A) are a significant part of corporate strategy engaging with the buying and selling of businesses in order to promote the growth of the company in the market. At the following image, we can observe the global M&A activity throughout the world from 2000 until 2019:

Figure 1: Global M&A activity by region Source: http://statista.com

For the year 2019, the worldwide M&A is down 20 percent compared with the same period in 2018. Mega Deals that estimated in more than $5bn have been reduced to half its value. In Europe, we can notice a decrease of 60 percent when in China we can observe a stagnation in investments. In contrast the US economy is still growing pretty fast, and, for now, enjoys a political and regulatory environment that is tolerant of large companies getting larger. America holds 57% of global market share in mergers and acquisitions with eight of the ten largest deals were USA domestic transactions.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Gaughan (2017) describes a merger as a conjunction of two businesses in which only one corporation survives and the merged part goes out of existence. The acquiring company undertakes the assets and liabilities of the merged firm.

According to DePamphilis (2003), the acquiring company assumes the controlling ownership interest of the merged firm. Scott (2013) describes the acquisition as the purchase of an asset such as a plant, a division, or even an entire company.

The main activities of mergers and acquisitions include fields such as corporate strategy, corporate finance, and management, targeting mainly in buying or selling corporations in order to create strong corporate forms that they will have the ability to become the market leader in an industry (Shimizu et al. 2004).

A survey made by Accenture in 2006 indicated the fact that in many times mergers and acquisitions failed to create adequate value. Boston Consulting Group M&A Report in 2019 proved that the economic recessions can be a great opportunity for deal-making. On the other hand, success demands thorough preparation, execution, and courageous decision making. Deloitte survey predicts some moderation and stabilization as strong M&A activity persists.

2.1 Merger and Acquisition

2.1.1 The Concept of Merger and Acquisition

M&A activity depicts massive reallocations of resources within an economy, both within and across industries (Bruner, 2004). According to A. Bitzenis, V. A. Vlachos and P. Papadi- mitriou (2012) the merge between companies are distinguished, depending on their types at the following:

✓ horizontal, which includes firms in the same industry or which produce similar goods and is characterized by the economic phenomenon of horizontal integration

✓ vertical, which is characterized by the economic phenomenon of vertical integration, in which vertically integrated companies in a supply chain are united through a com-

Postgraduate Dissertation 17 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

mon owner

✓ congeneric, which includes businesses from the same or related industry sector in which they don't offer the same products

✓ conglomerate, in which the engaging companies are operated in totally unrelated business activities

Also company acquisition is categorized in four types:

✓ A company listed on the stock exchange buys another listed company ✓ An unlisted stock company acquires a listed one ✓ An unlisted company acquires a non-listed company in the stock market ✓ A listed company acquires a listed company.

M&As are usually the product of a negotiation process among the management of the engaging firms. However, an unfriendly or hostile takeover (an open market purchase) occurs when the initial approach was unsolicited and there is a big difference between the involved parties (A. Bitzenis, V. A. Vlachos, 2016). The management of the acquired business does not hold the majority of the company's shares. This results in another company to be able to buy certain shares by overthrowing the management of the given company and eventually acquiring the company as a whole.

Based on Corporate Finance Institute (CFI) the merger and acquisition process can be broken down into three main phases: due diligence, agreement and integration phase.

Due Diligence Phase

Due diligence includes a thorough analysis of the target company in order to be decided if the firm is a good investment and to determine the cost of the merged company. During the due diligence procedure, the responsible managers must evaluate all assets of the merged company from property and technology infrastructure to human resources.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Agreement Phase

The agreement phase focused mainly on the terms and conditions for the M&A. It includes a detailed plan that describes procedures and strategies, inventory assessment, financial capabilities, organizational structure, and the form of communications.

Integration Phase

The integration phase includes change management, partnerships selection, estimating improvements, schedule plans, and investment.

The procedure of mergers and acquisitions create a number of issues that must be processed to analyze if the advantages of a merging outweigh the possible risks. A merger and an acquisition of a company always offers advantages without avoiding the disadvantages. The advantages of mergers and acquisitions based on Michael (1992) are the following:

1. The added value of a merger and acquisition can outweigh the productive activity of a company The M&A process always strengthens the company's market share without the needing for investment activity from the shareholders of the company. At the end, the company's revenues are rapidly increased from the acquisition of the market share of the merged company.

2. New markets are born for both companies. When a firm has merged with another strong player of the market, it immediately acquires a percentage of the market that probably not hold in the past. Many clients are loyal towards a specific brand and they have the dedication to purchase the same product again and again. The process of M&A allows these customers to maintain that loyalty as their favorite products will remain on the market. Customers have also access to a wide range of new products after the merger or acquisition is complete.

3. M&A is a cost-effective method to upgrade the potentials of firms.. The optimizing of the internal processes and operations of firms, as well as the upgrading of the technological infrastructure of a company often requires the investment of huge funds that in many times can be impossible to found. The M&A procedure offers the possibility for firms to cover these needs in a more affordable manner. This includes tangible or intangible

Postgraduate Dissertation 19 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

resources such as human resources and the intellectual property of the merged companies.

4. It can generate multiple growth opportunities. The combination of two firms that they were competitors in the past now cooperate together as one entity after the merging activity. They have the same strategy and more resources in order to be more efficient in the local market with strong economic benefits. The new entity after the merging has the opportunity to be the market leader and in many cases to regulate the market by intervening in the prices of products.

The major disadvantages of Mergers and Acquisitions are the following (A. H. Michael et al., 2008):

1. It creates insecurity and discomfort to the employees of each organization The M&A process has an effect on the human resources of both organizations with the consolidation of many positions since most job posts are covered by the existing staff of the companies. This practically means the elimination of many positions and the reduction of human resources.

2. The total debt of the new entity may be increased After the M&A process, the total debts of both firms recorded in the balance sheet of the new company resulting in the increase in the total debt of the new organization. This means that the new entity will face difficulties to borrow additional funds with catastrophic consequenc- es for the creditworthiness of the new firm.

3. There can be gaps and different approaches in corporate culture. Many companies make the mistake to erase the pre-existing organization culture in the merged organizations and the history that may have in the market. The successful companies retain a part of the culture that they had in the past by converging on common values and vi- sions. In fact, in a successful merger, the management does not intervene and does not re- shape the core culture of the merging companies.

4. Conflicts between the people of merged firms M&A are complicated procedures that demanding a long implementation time. During this 20

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

period of time many groups of technical people must cooperate together in order to complete the M&A process. When the interests of these people are in conflict then the process of Μ&A may lead to a stalemate.

2.1.2 Motives of Mergers and Acquisitions

Based on Motis (2007) there are two main categories of motives. The first category is in- spired by the neoclassical economic theory which focused on the economic gains of the shareholders of the dealing companies. The second category defines the managerial motives behind M&A that are in fact in contrast to the shareholders’ interests. Copeland and Weston (1988) introduced five fundamental reasons for business consolidation: increasing efficiency, privileged information, bigger market share, reduced taxes, and conflicts between shareholders and managers arising due to the principal-agent problem. Head and Ries (2007) claimed that mergers and acquisitions describe the never-ending battle between management teams in order to acquire companies with poorly performing management.

There exist many theories that claim that the majority of motives focus on efficiency and increased profitability for both firms that participated in the merge procedure. According to A. Bitzenis, V. A. Vlachos and P. Papadimitriou (2012) all motives should be divided into three main categories.

Economic Motives

The first category is the economic motives that include synergy, reduced costs, and a lessened tax burden. Synergy refers to the benefits that arise when two companies generate a new business entity that creates higher value compared to the one, had the two companies operated independently (Gaughan, 2002). Two companies can combine their capabilities, such as marketing, production, human resources, research and development, and information technology, in order to realize improved operating performance. According to Hayne (1989) the tax benefits are a dominant issue between companies before the transaction.

Postgraduate Dissertation 21 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Strategic Motives Kim, Haleblian, and Sydney (2011) claim that organizations that face unsatisfactory organic growth looking desperately for mergers and acquisitions with bigger firms on the market in their try to find the necessary funds so that they can survive. Strategic management is associated with the business core of the company, financial environment, policies and targets of the organization. It helps to recognize risks in management. When the investments take advantage of risk opportunities and can be exploited for further investments with positive net present values, then we can say that the strategy succeeds.

Personal or Managerial Motives

Many times the general managers of firms have personal motives and goals for the becoming merge instead of being interested in maximizing shareholder value. Managers are thirty for power and a merger with a bigger firm can provide them with greater prestige and more power. The bonus and salaries are higher in bigger organizations and many executives prefer the merger with them since the big size of a firm can provide them with greater influence. Jensen and Meckling (1976) claim that the relationship between shareholders and managers affect the manager's motives.

Managers often seek to maximize their own wealth rather than to maximize shareholder value. Roll (1986) argues against the rationality assumption of the managers’ decision-making process. Kahneman and Tversky (1982) confirmed that humans who make decisions under pressure do not make rational decisions consistently. Kaplanand and Weisbach (1992) assert the importance of the manager’s self-confidence in order to achieve their targets. The real question is why do managers continue to transact merger & acquisition (M&A) deals when so many are deemed to fail? Porter at 1985 claims that the main reason for an M&A is to achieve synergy by integrating two or more business units in a combination with an increased competitive advantage.

The main target for most sellers during the M&A procedure is the increase of the company's market value and the maximization of its value. On the other hand, acquirer motives in an M&A should be categorized in value-increasing or non-value-increasing. Based on (Bradley et al., 1988) an M&A has a value increasing when the firms achieve to integrate the 22

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

operations of the two merging firms. Pound (1988) claims that acquirers do not benefit from taking over undervalued targets. In the literature review, we can find many motives for the value increasing in a firm such as economies of scale, the maximization of the market power, tax redesign, stock leverage, and the financial coordination. Healy et al. (1992) claims that merged firms have a higher level of operating efficiency.

According to Corporate Finance Institute (CFI) the most common motives for mergers include the following:

Value creation

The merging of two firms should focus on the increase of the value of companies and increase the liquidity of their shareholders. In general, the unification of two firms leads in synergies that enhance the economic value of the new entity.

Diversification

The companies seek mergers in order to ensure their expansion into new markets or producing new products that will secure their differentiation in the market. In addition, it is common for the executives of companies to seek a merger agreement in order to differentiate the company's market risks.

Acquisition of assets

The holding of unique assets of some companies makes them attractive to acquire in the market. These assets are difficult to be obtained with the M&A process being the only alternative for a company that desires the acquisition of modern technologies or the obtained of a strong distribution network. The huge capital required in order to develop a strong alternative competitive solution makes the firms thirsty to acquire firms with a trend in innovation and unique products.

Increase in financial capacity

The creditworthiness of a company is very important so that it can raise new capital so that it can make investments and service its debt. The creation of a new entity through merge increases the financial capabilities of the new firm in order to develop in the market.

Postgraduate Dissertation 23 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Tax purposes

The Μ&Α process allows the transfer of taxable income from one company with significant income to another with accumulated losses. After the merger, the new entity will have a balanced budget with the total tax liability of the merged firm to be much lower.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

2.2 Introduction to Private Insurance

Nowadays, people are looking for ways to avoid potentially harmful things. Insurance is the accumulation of accidental and unforeseen risks by transferring them to insurers, who agree on a premium to insure the insured for accidental damage or provide other financial benefits or services associated with this risk (Nektarios, 2003). According to Nektarios 2003, the basic features of Insurance are the following:

Pooling of risks The pooling of risks is a process in which the losses incurred by certain insured are distributed to all insured.

Transferring risk The risk, in this case, is transferred through insurance companies from the insured to the insurer, who can assume the overall risk, because through the Law of Large Numbers is able to estimate accurately the expected losses.

Compensation Finally, another feature of private insurance is the compensation of the insured victim in case of any loss. The insured gets partially or fully compensated by the agreed policy.

According to the insurance law, the insurance contract can only be exercised by the insurance company, which assumes the third party risks over the payment of insurance premiums. Through these premiums, the insurance company collects sufficient funds by which it can pay any claims to its insured in the future (Helmut, 2011). Greece has approved that insurance should only be exercised by Anonymous Companies (S.A), which will also be subject to spe- cial supervision. This supervisory task is only performed by the Bank of Greece (https://www.bankofgreece.gr/https://www.bankofgreece.gr/).

The operations of insurance companies must be ruled by common rules so that they can operate across the European Union. This ensures their financial stability as well as the protection of the insured. European Union has imposed the Solvency II Directive (2009/138/EC) in its attempt to implement a regulatory framework in which the insurance companies can operate.

Postgraduate Dissertation 25 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

The main part of this directive concerns the amount of capital that insurance companies must hold in order to decrease the risk of insolvency. Based on European Financial Stability Board the Solvency II directive is depicted in three 'pillars':

✓ Pillar 1 includes quantitative obligations, define qualitative requirements, the rules to evaluate assets and liabilities, the capital demand, and the identification of eligible own funds

✓ Pillar 2 defines all the requirements for change management, risk management, corporate governance, and the details of the supervisory process by authorities. This will ensure that the business decisions are determined by the regulatory framework and the risk management system.

✓ Pillar 3 associated with financial transparency, reporting supervisory authorities, and the announcement of financial reports to the public. This pillar enhances the company's credibility from the market and consumers

Figure 2: Solvency II framework Source: https://underwriter.gr

Insurance is actually a form of contract. The validity of an insurance contract based on certain

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

principles that determine its credibility. Based on P.K. Gupta (2007), both parties must abide to the following principles:

Reliability An insurance premium must base on the mutual trust of both parties. It is essential for the insured to inform all relevant issues to the insurance company.

Subrogation The insurance company undertakes the process of compensation for the insured. The compensation is paid base on the signed contract and it is subject to the respective laws of the local states.

Contribution The insurance company undertakes to compensate any damages caused by its insured. The insured is not entitled compensation from more than one insurance company.

Postgraduate Dissertation 27 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

2.3 Information Systems

2.3.1 Introduction to Information Systems

An information system is a complicated system that includes many integrated systems for gathering data, storing, processing information, and production. Today many modern firms trust and invest in information systems in order to control their operation, interact with their clients, manage the suppliers, and evaluate the market. According to Wikipedia, an information system (IS) is described as technical, algorithmic, organizational systems developed to gather, process, save, evaluate, and distribute information.

All of these systems focused on data. Mustafa Muhamet (1995) claims that data which produce by IS are used by people in order to make decisions (human resource, production lines, advertising, marketing). The result is the production of observable results, such as the percentage of sales, the number of orders, and the control of the production flow.

Firms use the technology of information systems in order to have a competitive advantage in the market against other rivals. Today all the production lines and operations of firms managed by IS. James O.Hicks (2003) describes an information system such as an advanced computer system that can retrieve, transfer, process, and evaluate data from different sources to provide the necessary knowledge in order to support the procedure of the decision making.

Au and Kauffman support the fact that companies prefer to use the safer existing technology, rather than any promising development technology that may be superior in the future. Choi (1997), as well as Choi and Thum (1998) claim that when a firm makes a decision to adopt a technology then it will be very difficult to replace it in the future.

In the last decade, the necessity of information systems (IS) has been impressively increased because the majority of businesses have implemented them (Davidavičienė 2008, Paliulis et al. 2012). Today the modern organizations cannot be efficient without the usage of an information system. Based on numerous researches an information system in an organization could bring a lot of benefits in dealing with internal and external tasks that a company might face in day-to-day operations and long-term decision-making (Pabedinskaitė 2010). An information system which is successfully integrated into the business needs and simulate all

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

the operation of firms improve the business performance (Pabedinskaitė 2009, Yahaya et al. 2004).

The majority of information system (IS) has users, procedures and technology. We can depict an IS as a triangle with each of the previous entities on the three vertices. James A. O’Brien and George M. Marakas (2017) claim that the parts of the triangle must interact in concert to achieve business objectives.

Figure 3: Information systems triangle

Source: https://www.researchgate.net/figure/The-Information-Systems-Triangle_fig7_258600399

Αn information system can be used for decision-making, and for the coordination, control, analysis, and visualization of information in an organization. J.W. Wilkinson (1999) talking about computer operating systems mentioned five tasks or activities: data collection, data processing, data management, control and security of data and information generation. Via these tasks, data from different resources are converted into information through a procedure called data processing.

Postgraduate Dissertation 29 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

The research analysis which is made by Awais et al. (2012) proved that companies throughout the world started to notice a great need for information systems in the business field. It was quickly observed that an IS can help a business to increase its profit and gain a competitive advantage in the market. Without a doubt, the use of information technologies in business could create a significant impact on its performance, and as a result in achieving its strategic goals.

2.3.2 Information System Types

Based on Reddy et al. 2009 Information Systems categorized by the quality of data, type of processing, system targets, and providing support.

Office automation systems are intelligent systems that gather, process, save and transfer electronic information, documents texts, and any kind form of communications between people, groups and organizations.

Transaction processing systems (TPS) focus on operations. The main objective of these systems is to manage the operational level of the firm. A TSP system has encapsulated algorithms that evaluate, control, and record the daily operations and transactions which are important for the business.

Office automation systems target to boost the abilities of the executives to manage the whole flow of the information in business. These systems enhance the communications between people of the company and improve productivity.

A management information system is a smart system that focuses on decision-making through the processing of collected data. In these systems people, procedures, and technology combine and corporate together in a way that increases the value and the revenues of the firm. These systems providing the executives with the necessary information helping them to make the correct decisions on time.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

A decision support system (DSS) targets to support actions that triggered timely in a firm. These systems use information in order to estimate projected earnings, sales graphs, and evaluate critically actions under pressure conditions.

Expert systems based on Artificial Intelligent and data mining. These systems are knowledge- based platforms providing managers with the necessary knowledge in order to take action. This category is mainly used in commercial applications.

A knowledge management system is a system that helps the firms to organize texts and documents in formats that are accessible from authenticated users and customers.

Strategic Information Systems focus on the evaluation of the market and other competitors. Their target is to improve the efficiency of the organization providing the necessary tools that helps firms to recognize opportunities in the market.

Human Resources Information Systems are centralized systems that help firms to manage and organize their workforce at many levels, in order to make the correct decisions.

2.3.3 Information systems and their success

During the last decade, companies throughout the world have increased the investments in the information technology sector. Worldwide IT spending reached a total of $3.7 trillion in 2019, displaying an increase of 0.4% from 2018, according to the latest forecast by Gartner, Inc. In the year 2020, we expect a significant increase in the investments at IT sector with forecast growth of 3.7%, due to the rapid expansion of software companies.

At the same time, we can notice a great number of failures during the implementation of information systems. The results of a questionnaire-based survey made in 2006 in the USA proved that 62% of software systems were implemented successfully (Verner et al. 2006). Despite the fact of high investment in information technology, the production levels remain low. Brynjolfsson (1993) calls this paradox as productivity paradox that remains as a top concern for the scientific community until today.

There are many studies from 1970 which measure the impact of the IS success at the success

Postgraduate Dissertation 31 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

of companies and today we have strong proof of that (Solano et al., 2014). The quantity and quality of human and technological resources that a company has, are directly correlated with the success of an information system. The organizations which acquired advanced technological infrastructure, development methodologies, and those which improved the skills of their programmers, have managed to have better quality systems, skilled professionals and organizational development of the company (Ravichandran & Lertwongsatien, 2005).

2.3.4 Information Systems in the Insurance Sector

Today in the modern financial market the successful usage of information systems gives companies a comparative advantage in order to compete in the market. Through the information systems, a company has the ability to attract new customers, reducing its cost and conducting actuarial accounting more accurately (Investopedia).

Unfortunately, most insurance products have low loyalty from clients. The client often no longer depends on specific insurer's discounts, quality of service or efficiency of the with- drawal of loss. Customers have the trend to replace one insurer by another in their try to find the best cost products. But at the present the insurer who wins is more customer-oriented and meets the customer’s needs.

The modern world is unthinkable without technological solutions, therefore, those insurance companies that have the opportunity to use information systems more widely will experience the growth. The development of information technologies is one of the strategic factors of investment activity (Ustinov A E, Ustinova L N, Academy of Strategic Management Jour- nal).

Uninsured risk has substantial welfare costs, not just in the short run, but also in terms of per- petuating poverty (UNICEF). There is a huge prospect for insurance companies, the development of which will advance the standard of living of the population (Fakhrutdinova E, Karasik E, Safina L, 2013, World Applied Sciences Journal). We can depict the main directions of information technologies in the insurance sector in the following table.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Figure 4: The main directions of information technologies application in the Insurance business (G N Kaigorodova, A A Mustafina, D P Alyakina )

Source: G N Kaigorodova et al 2018

Insurance companies manage personal data and for this, the role of information systems is very crucial in order to ensure the safety of these data. In the last decade, we can observe great improvements in this domain. However, we can observe new problems and limitations that derives from the current achievements. Organizations need huge funds in order to maintain their existing technological infrastructure. Simultaneously, companies are beginning to realize that the evaluation of information systems should not be based solely on the evaluation of these systems in terms of internal efficiency, but should also be evaluated the quality of services that these systems offer to customers. We can observe this change at Ergo Insur- ance Group (Ergo Group - https://www.ergo.com/) which redesigned all its systems trying to combine sound long-term policies with effective short-term measures.

ERGO develop policies, terms, and conditions regarding the usage and the security of its sys-

Postgraduate Dissertation 33 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

tems, hardware, telecommunication, and resources based on the following:

• more effective support, integration, and controlling of the company's central technological infrastructure

• an intense focus on the development of company's information systems that are critical for the proper operations of the company

• more support and continuous education of the people who are engaged with these systems

In the future, information systems will be very crucial for insurance companies. Deloitte reports at 2019 claimed that 1.33 % of insurance firms had developed artificial intelligence systems. The same report claims that 49% of insurance companies are searching for partnerships and alliances with technology vendors in order to continue their digital transformation. The expectations are high.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

2.4 Conclusions - What we have learned

Mergers and acquisitions play a crucial role in the global and public economy. Nowadays the economic phenomenon of mergers and acquisitions constitutes a major issue for many companies due to the global unfavorable economic conditions and the increasing competition in the marketplace.

Many businesses cannot stand the competition and lose their full autonomy. As a result, they end up bankrupt and close or they are trying to move through mergers and acquisitions to a larger company-group that can help them to survive. Although this does not mean that large companies do not face any difficulties. The benefits of a merger or acquisition for the involved companies are usually not visible immediately but over time.

Mergers and acquisitions play an important role in a company’s development. The benefits of M&A really improve and support the long term development scheme. Perhaps the effectiveness of M&A depends on the strategies of the Board, the flexibility of negotiation period and enthusiasm of parties, but they could reach the target if they are well prepared and focus on conducting mergers and acquisitions successfully.

We want to enhance the significance of M&A to the growth of organizations. Without a doubt, M&A is proved one of the most important methods in order to solve current difficulties and improve the growth of organizations. M&A supports the development of the global economy since it creates opportunities for companies to be more competitive in the marketplace. Mergers and acquisitions are extremely noticeable ways to tackle the difficulties in the 21st century.

During the last decade, the insurance sector in Greece has faced unbearable pressure, due to the intense competition, the economic crisis and the inability of many insurance companies to cope with these unfavorable conditions. Many of them were bankrupt due to their inability to find liquidity and make strong alliances with other market competitors. The strong firms of the insurance market chose to merge with other competitors in order to create bigger

Postgraduate Dissertation 35 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

organizations with high liquidity. In the following diagram, we depict the number of insurance companies in Greece from 2007 until 2016 based on the Association of Insurance Companies of Greece (eaee.gr).

Figure 5: Number of insurance companies in Greece during the years 2007-2016. Source: Data from research

We can observe that the insurance companies that are active in Greece are declining. In 2007 there were 86 companies while in 2016 only 57 were active. Today in 2020, the union of insurance companies reports only 42 insurance companies. Mergers and acquisitions were the dominant trend in the insurance industry of Greece in an effort of companies to survive in the marketplace.

Also in Europe, we can notice a decrease in the number of insurance companies with most of them following the path of merge and acquire. About 3,400 insurance companies were active in Europe in 2019, declined by 2.4% in comparison to 2018. Without a doubt the future of insurance companies will be prosperous only with acquisitions and mergers, which now seems to be in a quagmire.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

In the next chapters, we study the case of ERGO Insurance in Greece that was created after the merge and acquire of four big insurance companies in 2016, proving the theory presented in this chapter.

Postgraduate Dissertation 37 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

3. Research Methodology of the study

In this chapter, we explain the reasons we chose the case study analysis in order to approach the subject of this thesis. In addition, we present the most frequently used methods that are implemented by researchers in order to find answers in their research questions.

3.1 Analysis of the most frequent research methods

Davies describes the research philosophy as a dynamic system in which the research question must be approached, including the following "positivism", "realism" and "interpretivism" (Davies, 2007). Positivism depicts the philosophy in which the knowledge is based on reliable information collected from observable objects. Saunders et al (2003) describes realism as the concern for fact or reality and rejection of the impractical and visionary. Interpretivism focused on beliefs and stereotypes of social actors in order to realize the social reality (Rea and Parker, 2006). In this chapter, we note the most famous research methodologies used for analysis in order to uncover new information or create a better understanding of a topic.

Econometric analysis is the use of mathematics in order to evaluate economic data. There are two broad subdivisions in econometrics. Theoretical econometrics exploits statistics in order to seek out the advantages or disadvantages of an economic model. On the other hand, the applied econometrics estimates how well a model simulates real-life data. Econometrics must be assessed as a technical tool that is used by researchers in order to advance knowledge, with the ultimate goal of making the right policy decisions (Moosa, 2017).

Quantitative analysis is the procedure of collecting observable data in order to find an answer in a research question with the usage of statistical and mathematical techniques. It is more accurate than qualitative research, which targets the collection of non-numerical data. The qualitative analysis examines views, meanings, and descriptions. The quantitative analysis examines measurable and numerical correlations. Unfortunately, the quantitative analysis many times maybe not useful as an analytical tool because it can fail to include all the elements that affect a certain subject (Christensen et al, 2015).

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Statistical analysis is the procedure of gathering, transforming, and organizing data in order to retrieve useful information for making a well-informed decision. The statistical analysis feeds the researchers with real-time data about complicated situations and conditions in order to help them in making decisions based on real facts rather than assumptions. Bitzenis and Vlachos applied statistical analysis in F.Y.R.O.M in order to examine the determinants of FDI in this country by processing a questionnaire survey of foreign business that operated there (Bitzenis et al., 2012).

In desk analysis, the data are collected from existing available resources. This method is considered as a low budget analysis. The main role of the researcher is to review all collected research findings in order to have a clear understanding of the topic. The research data are easily accessible for further processing from the researcher in order to help him to evaluate the research problem and generating hypotheses. The main purpose of this analysis is to retrieve knowledge from previous sources and statistics. The procedure that leads the researcher to investigate again the existing data may generate new discoveries (Smith, 2008).

Questionnaire analysis is a research tool that including a series of questions with the purpose of collecting information from a target group. Questionnaire research is cheap and it doesn't demand much effort from the researcher as other surveys. It has many standardized answers that make the whole procedure easy to collect data. However, many times the respondents giving answers which not represent their real desires. The sample of the research and the representativeness of the specimen are very important in order to have a successful research (Wikipedia survey, 2018).

In observation analysis, the researcher should observe the behavior of a selected target group in order to retrieve useful information about the behavior of the participants in a situation. This method requires the researcher to become an effective observer in order to identify the strengths and weaknesses of the behavior of a target group. The researcher must be a good analyst and an effective observer in order to be able to evaluate the performance of the participants.

Postgraduate Dissertation 39 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

In the case study analysis that we are selected in order to approach our issue in this dissertation, the researcher make an in-depth analysis of a situation or a phenomenon. A case study is an attempt by the researcher to make an investigation in order to evaluate the whole subject and extract useful information from his research. Cope (2015) describes the case study analysis as a pliant but promising methodology that is mainly used in social science research. In the case study analysis, we can collect a lot of details for a specific subject in contrast with other methods. The collected information is a lot richer and more detailed than other design methods. Case studies help the researchers to implement complicated experiments in order to generate ideas that can be used for further proceeding from society. On the other hand, case studies are implemented from one person or a group of people with specific characteristics and opinions. This reality leads in many times in distorted assumptions and it can be influence the final results of the research.

3.2 The purpose of this study and the selected analysis

The purpose of this dissertation is to investigate the impact of information systems in companies, by studying the procedure of merge and acquisition of Ergo Insurance Group. We examined thoroughly both Greek and foreign literature on the structure of insurance undertakings, financial analysis, mergers and acquisitions, as well as information systems which are the main subject of the analysis, as well as various useful web pages were reviewed. We are trying to investigate and find answers to the question of whether the usage of information systems from companies have a positive or negative effect on their performance. We focused on the Greek insurance sector, where due to the country’s debt crisis and the market rearrangement, many mergers have been observed.

In this thesis, we select the case study as the research methodology. We study and present the acquisition case study of the firms: “ERGO-Property” and “Casualty”, “ERGO-Life” and “ATE Insurance”, as the most recent and most important merger in the insurance sector. We conduct a qualitative analysis on the financial figures for each of the aforementioned entities separately, as well as for the final entity (“Ergo – ATE Insurance”) that resulted from the merger of the above companies. We also studied the information systems of the company

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

after the merger in order to prove their contribution and their impact on the success of the company.

We collected data mainly from the balance sheets of the merged companies (Ergo Insurance - Ergo Life - ATE Insurance) in order to conduct a qualitative analysis of the financial figures for each of the aforementioned entities separately. In addition, we gathered data from national institutes and organizations: Hellenic Bank, Hellenic Statistical Authority, and Bank of Greece.

3.3 Advantages and Limitations of the case study analysis

A case study always has advantages, disadvantages, and limitations. A case study is one of the best approaches in order to simulate a new research issue. Case Studies contribute to the collection of detailed data in relation to other research methods. The gathered data are usually more detailed and documented compared to other methods. Also, case studies can allow researchers to adopt new models and produce hypotheses that can be used for further research. The cost of case studies is usually lower than other methods of research. In addition, case studies focus on rare cases in which we do not have the ability to collect large samples of data. In the end, a case study method puts data into a usable format for those who read the data and note its outcome.

On the other hand, a case study can have influence factors within the data. Every person has their own unconscious bias. The main criticism is that researchers do not have the opportunity to generalize the results of the research to the general population. Zeev Maoz (2002) claims that “the use of the case study absolves the author from any kind of methodological considerations. Case studies have become in many cases a synonym for freeform research where anything goes”. This leads to the collection of data that is not always relevant or particularly useful. In addition, it is also difficult to extract a definite result from case studies.

Postgraduate Dissertation 41 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

4. Case Study – ERGO INSURANCE GROUP

Insurance companies play an important role in the stability of the economic system. These companies make large investments in financial markets and they are protecting the property of households by insuring their possible dangers. During the years, the insurance has been associated with the protection of citizens from damages and uncertainty.

In this chapter, we describe the ERGO insurance by showing the profile of the company, the insurance services provided by ERGO Group, and a description of the companies that merged in order to create the new group (ERGO Insurance Company, ERGO-Life, and ATE Insurance). We depict detailed information about the companies, their interest in the global market, and their strategic objectives. We focus on their production activities in order to showcase the strengths and disadvantages of each company.

4.1 The Profile of ERGO Group

This case study focused on Ergo Group which one of the major insurance groups in Europe. The Group has a presence in 30 countries throughout the world, concentrating mainly on Europe and Asia. ERGO portfolio offers a wide and comprehensive range of insurances, compensations, pensions, investments, and financial services. In the German marketplace, ERGO ranks as the market leader with activities in many sectors. In the year 2019, ERGO had a total premium of 19 billion euros and paid its customers net policy benefits of 17 billion euros.

Greece becomes one of the most significant markets for the Ergo Group. Greek subsidiary of company strengthened its position after the merger of ERGO Property and Casualty, ERGO- life and the acquisition of ATE Insurance in 2016. The Greek competent regulatory authorities in August of 2016 approved the merger as it considered that it does not create monopoly conditions in the market. The new company operates in the Greek market under the brand name ERGO Insurance Company S.A.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Figure 6: ERGO at a glance.

Source: https://www.ergo.com/en/Unternehmen/Portrait-ERGO-Group

ERGO Group AG founded at the end of 1997 by the merger of Victoria Holding AG and Hamburg-Mannheimer AG. The main activities of the group focus on private customers, pension schemes, and medium-sized organizations. In Europe, ERGO is the first in health and legal expenses insurance. Ιn its home market Germany ERGO claims to belong to the market leaders in all lines of business.

The most important historical data are depicted in the table below

Table 1: History of Ergo

Postgraduate Dissertation 43 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

The Greek branch of ERGO is operating in the sector of general and health insurance providing high-quality services based on customer's needs providing them with the best service. Ergo holds a significant portion of the Greek insurance market providing a wide range of insurance services that cover the needs of citizens.

The following table is listing the top ten in production insurance companies of Greece, according to data published in 2019. We compare the revenues of companies between the years 2018 and 2019 and we depict the range at the last column. We can observe that all insurance companies have increased their earnings during the last year as reflecting some stability on the economy with market forces tending to direct the economy to a smooth growth path.

Top 10 of the most productive insurance companies in Greece at 2019 Insurance Company Revenues (Millions of euros) Range (%) Year 2019 2018 1 Ethniki Asfalistiki 741 571 23% 2 Eurolife 505 428 17,99% 3 NN HELLAS 470 421 11,64% 4 Interamerican 353,9 362,9 2,54% 5 Metlife 293 263 11,40% 6 Ergo Group 239,5 238,9 0,25% 7 Generalli Hellas 218 184,75 4,80% 8 European Insurance 212,4 191,35 11,20% 9 Allianz 164,2 158,9 3,40% 10 AXA Insurance 160 155 3,22%

Table 2: Top ten insurance companies in Greece

In 2019, the economic results left the people of Ergo satisfied closing at levels higher than the targets set. Ergo Insurance closed in 2019 slightly upwards compared to the previous year. ERGO's total production for 2019 reached 240 million euros, namely 239.5 million euros, slightly higher than the 238.9 million euros in 2018. According to market estimates, ERGO ranks first in the country in the production of general insurance. It is noted that ERGO Insurance operates both in general insurance and in the life sector through a multi-channel distribution system that includes a network of agents and brokers, as well as strategic cooperation with Piraeus Bank.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

4.2 The merging companies of the group

Previously we reported that the Ergo operates in Greece with the current form after the merging of all subsidiaries of Group. In this section, we present these branches that operate in the Greek market before the merging event in 2016.

4.2.1 ERGO Property and Casualty

The property-casualty business of Ergo included the insurance of personal property (cars, homes) and liability (personal or professional). It covered a wide range of insurance products and services developed for individuals and organizations.

Ergo as the market leader in general insurances cooperates with insurance agents, financial brokers, and consultants in order to provide commercial products to customers. ERGO corporate insurance allows until today the covering of six different insurance covers with one contract:

✓ Property insurance offers insurance for buildings, the interior, outdoor areas, inventory, equipment, electronic machinery, materials, services, and goods.

✓ Business insurance protects a company from any possible damages and losses such as financial difficulties and natural disasters

✓ Equipment breakdown insurance protects office equipment, industrial machineries, software and hardware.

✓ Employer’s liability insurance protects the employer from any losses caused to an employee such as work accidents or occupational disease.

✓ Third-party liability insurance covers losses to the property that caused to third parties by the policyholder’s economic activities

Postgraduate Dissertation 45 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

ERGO has reached an agreement with Piraeus Bank S.A. in 2010, concerning the distribution of general insurance products until 2030. This agreement reflects and builds upon the excellent cooperation between the parties in the bancassurance sector in Greece. All insurance programs of the company are available via Piraeus Bank taking advantage of the large banking network of Piraeus.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

4.2.2 ERGO Life

Ergo Life is active in the health insurance sector, offering its customers a wide range of health products. Its main activities focus on the health insurance of its customers offering universal life and whole life insurance. A health insurance plan of Ergo Life provides protection and financial security from contingent situations such as health problems, work accidents, and possible disasters.

An insurance plan of Ergo offered

✓ Protection and covering medical costs

✓ Detailed Health Plan solution

✓ Tax benefits

✓ Μedical care in private hospitals

The ways in which the insurance company distributed its products were also through intermediaries, agents and banking partnerships, as in ERGO Property. In addition, the insurance company developed investment strategies in collaboration with ERGO International S.A. Investment Group.

During 2016, the year that we are interested in due to the merger that would occur, the ERGO Life showed a loss after taxes of 0.3 million Euros as is analyzed in chapter 4. Using the financial situation of the company in 2016, the increase of the net accrued premiums had not managed to cover the costs of insurance indemnities and operating expenses. The merger of company was inevitable.

Postgraduate Dissertation 47 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

4.3 ATE Insurance

The ΑΤΕ Insurance Company (Agrotiki Asfalistiki) was founded in 1980 under the brand name "AGRICULTURAL S.A COMPANY OF GENERAL INSURANCE". The main shareholder was the Agricultural Bank of Greece and a small percentage of co-ownership held various Agricultural Cooperative Organizations, after the company's entry into the Athens Stock Exchange.

The primary activity of the Agricultural Bank was fire insurance since 1932. The general orientation of the company had focused on agricultural issues and interests. Since 1936 they had the management of the Agricultural Insurance Fund. Then it started to operate as an autonomous company in 1980 and it focused on agricultural Insurance. Since 2005 the company operated with the brand "ATE Insurance" until the middle of 2016, having had a specialization in the general industry insurance as well as life insurance.

Based on the financial statements and the solvency ratios that were published for the year of 2016, it was shown that the company had profitability after taxes equal to 15.4 million euros, coming mainly from the investment programs but also the effect of the deferred tax. On the first day of August 2016, PIRAEUS Bank had completed the sale of its ATE Insurance business to ERGO Group - part of German reinsurer MUNICH Re - for EUR 90.1 million.

The acquisition of ATE insurance was a significant event for the insurance market. With the absorption of ATE, a historical brand was erased. However, the knowledge and the potential of ATE were a great legacy for ERGO which should give a different footprint from the past in private insurance.

The acquisition of ATE Insurance had a strong symbolism for the market. It showed that the future of private insurance requires mergers and acquisitions having as a goal the creation of very strong insurance companies that have the ability to correspond to the global competition. At the same time, we should notice the failure of the Greek public sector to operate successfully inside a capitalist system. The case of ATE proved the inability of the Greek public sector to exploit its assets.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

However, ATE Insurance had created a unique culture in insurers. It also managed to develop a huge network. People, "knowledge", production and value joined a very large company and this was the guarantee for their continuity. In the next chapter we will investigate the financial details of the acquisition in order to find if this acquisition was beneficial for ERGO shareholders and society.

Postgraduate Dissertation 49 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

4.4 Services provided by ERGO Insurance

After the merging procedure, ERGO S.A provides insurance policies to individuals and businesses, trying to protect them from any kind of danger that may arise. The most popular insurance policies in the insurance sector for a private customer are the following:

✓ ERGO My Auto, which concerns the protection of the vehicle with the main coverage being the weather phenomena, any accident of the driver, damages in the insured vehicle (mixed), but also the material damages that come from another uninsured vehicle. Through an information system developed by the company, every customer has the ability to calculate the premiums in order to insure his vehicle, as well as to check if his vehicle is insured and in which company.

✓ ERGO Home, insurance coverage that aims to protect the customer's home and its assets within it. The basic coverage it provides covers risks such as fire, short circuit, theft, earthquake, natural phenomena and any other accidental event that may cause damage.

✓ ERGO Life Insurance. Life insurance is considered the most basic insurance program for individuals, as it concerns the protection of themselves and their families. As mentioned above, ERGO Life was active as a separate Insurance Company before the merger. This insurance program protects the family by providing a significant amount of capital available in cases of immediate financial needing. Some of the coverage benefits are the borrower's insurance, the temporary insurance, life insurance, mixed insurance and finally life insurance where the capital is paid to the insured, at the end of his insurance as long as he is alive, or to the beneficiaries, in case of his death.

✓ ERGO Health Care is the program with which ERGO Insurance Company provides its customers with prevention and treatment for health problems. It provides to policyholders access to several recognized hospitals and clinics in Greece and abroad with a maximum of € 300,000 per hospital incident and € 500,000 per insurance year.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

In addition to the programs that have been analyzed and related to private insurance, it also provides insurance to companies and their employees. More specifically, the most basic insurance contracts for companies are:

✓ ERGO Business, which provides coverage packages to insured business and comprehensive protection according to the needs, such as loss of profits or disaster from natural phenomena.

✓ ERGO Group Insurance, which provides the company's human resources as well as their families coverages in the event of a serious accident or even death.

✓ ERGO Agricultural Insurance, basic coverage includes the insurance of plant production from natural hazards, wild animals or fire, the insurance of greenhouses and the insurance regarding any changes in temperature or soil moisture and fire.

✓ ERGO Shipping Insurance. Nowadays, the shipping industry is preferred by far more and more people looking for work. But the dangers of the sea are unpredictable. As a result, ERGO Insurance has created a suitable insurance program, to protect the crew of each ship from total or partial incapacity, from hospital expenses and whatever else concerning this.

ERGO S.A has managed to cover all kinds of risks for its customers and has the ability to cope with the intense competition that exists among the big insurance companies.

Postgraduate Dissertation 51 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

5. Case Study Analysis and Critical Discussion

In this chapter we present the case study of ERGO Insurance Company, which was created from the merger of ERGO-Property and Casualty, ERGO-Life and the acquisition of the Agricultural Insurance (ATE Insurance). We analyze the merger based on given economic results in order to decide if the merger of the companies is successful or a failure. Also, we note the importance of information systems for the success of the company. Finally, we depict the strengths, weaknesses and threats of ERGO Insurance in Greece after its merger.

5.1 Financial Analysis and Information Systems of ERGO-Property and Casualty

One of the most important subsidiaries of the Ergo Group in Greece was the ERGO-Property and Casualty. Before the merging in 2016, the company was specialized at the insurances of personal property and liability (personal or professional). ERGO-Property and Casualty has been operating in Greece for more than 25 years, employing 227 people and having Ergo Group as its main shareholder. We presented at chapter 3 the company and its activities. In this section based on the financial data of the company until 2016, we aim to analyze the economic situation of the company before the merging in a huge scheme.

The company achieved to fully cover its capital requirements from the first year of the implementation of the Solvency II directive and held a total amount of 120.6 million Euros in equity. The solvency capital requirement (SCR) of the company in 2016 that expressed the amount of funds that insurance and reinsurance companies are required to hold under the European Union’s Solvency II directive was formed in 143,3%. The SCR incorporates risks such as non-life underwriting, life underwriting, health underwriting, market, credit, operational and counterparty risks, and must be recalculated at least once per year. In addition to the SCR capital, the Minimum Capital Requirement (MCR) of the company, which represents the threshold below which the national supervisor (Bank of Greece) would intervene, was formed in 399%. As a result, the company can be classified as solvent, at least for the immediate future, since the solvency ratio of this is over 100%. These solvency ratios

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

indicated that the company’s cash flow was sufficient to meet its short-and long-term liabilities.

In the following table, we present the basic economic sizes of the company, such as gross registered premiums, net accrued premiums, the cost of compensation and the profits it had after taxes. We want to depict a general picture of the economic situation of the company at 2016, as well as the strengths and weaknesses of ERGO-Property and Casualty before its merging.

Financial Data at 2016 - ERGO Property

Financial Data 2016 2015

Gross Registered Premiums 145.90 millions of euros 139.80 millions of euros Net Accrued Premiums 120.30 millions of euros 114.00 millions of euros Human Resources 228 199 Compensation Costs 46.00 38.50 Operating Expenses 48.30 45.00 Investment Result 2.5 4.9 Profits before taxes 26.30 30.5

Profits after taxes 17.60 25.20

Table 3: Financial Data of ERGO Property at 2016 Source: Data from research

We observe in Table 3 that the gross registered premiums of the company increased from 139.80 million Euros in 2015 to 145.90 million euros in 2016. As a result, the net accrued premiums were also increased from 114.0 million euros to 120.3 respectively. The improvement in the financial situation of the company in the aforementioned years came mainly from the lower reinsurance costs that existed in 2016, due to the fact that the market economy conditions were smoother than the previous year. The important thing was that the company managed to increase its production despite the difficult conditions prevailing in the country, operating in a competitive environment due to the intense shrinkage of the insurance market in Greece.

The compensation costs increased in 2016, as did operating expenses, due to the small increase of 29 people in human resources. The company decided to cover various advertising

Postgraduate Dissertation 53 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

campaigns, promoting its existing products and invested in its information systems knowing about the merger that would take place next year.

In general, the company showed positive progress, which as recorded above is due to the increase in insurance contracts but we notice a decrease in net profit after taxes due to the reduction of its investment result by 49.0% compared to 2015.

The technological infrastructure of the company was considered satisfactory due to ongoing investment in Information Systems. The majority of the economic activities of the company were made by the web platform. All insurance products of the company were promoted and sold through an online interactive system namely ERGO portal. The online systems of the company replaced the legacy bureaucratic systems which collected millions of contracts in excel format and could not process and configure critical information.

In 2016, ERGO via its information systems had the ability to process claims efficiently. Information could be gathered and entered into online forms for processing. Agents and customers had access to information so they could be kept up to date as the claims process progressed. Information systems also enhanced Ergo’s communication with its policyholders. The company could collect data and send it to customers using easy-to-understand forms with information about claims status, benefits, and tips on ways to stay healthy or reduce costs. By embracing information technology, Ergo could operate more effectively in order to attract and retain customers.

Through Information systems the company had the ability of the following:

✓ Launch innovative products to the market quickly

✓ Automate all areas of the company

✓ Provide access from any device. No installations. No downloads required

✓ Get detailed and updated real-time accounting

✓ Easy maintenance and change management

Information systems of Ergo made it easier for consumers to find information on policies, to enroll, to manage their policies, to update information, and to check the status of claims. The company could free up resources so that agents and customer service staff would have more time to assist customers one on one, leading to more satisfied policyholders and increased profits for insurance companies. Without a doubt, we can say that the company had a strong 54

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

technological infrastructure that could support the operations of the new company after the merger.

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5.2 Financial Analysis and Information Systems of ERGO Life

The Ergo Life operated autonomously until the year 2016, taking risks of life insurance, exclusively in the Greek state. ERGO Life has deliberately chosen to focus its life insurance and savings activities.

The company distributed its products through intermediaries, agents and banking partnerships. All insurance products of the company were sold through an online interactive system.

During 2016, the year that interests us due to the merger listed below, the ERGO Life showed a loss after taxes of 0.3 million euros. The capital adequacy ratio of the company in 2016 stood at 431.2% in terms of solvency capital requirements and 164.2% in terms of minimum capital requirements.

In other words, the company's capital solvency requirements were around 1.4 million euro lower than the 3.7 million euro required for companies whose activity is reported in the life sector. Obviously, this raised the question of how the company should operate in order to have the power to cope with the creditworthiness directive and not have large financial losses.

Ergo Life gave its policyholders a unique opportunity to pay premiums through Internet absolutely free and also view their policy details on Internet premium payments. The company has been one of the pioneering organizations in Greece that introduced the leverage of Information Technology in servicing and in their business. We may say that the company had an advanced technological infrastructure in contrast to its financial performance which caused concerns to the executives of Ergo.

The following table presents the basic economic sizes of the company in 2016, such as gross registered premiums, net accrued premiums, investments and profits after taxes. We aim to depict the economic situation and reasons for the decision to merge ERGO Property and ATE Insurance.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Financial Data at 2016 - ERGO Life

Financial Data 2016 2015 Gross Registered Premiums 1.6 millions of euros 1.2 millions of euros Net Accrued Premiums 0.9 millions of euros 0.6 millions of euros

Compensation Costs 0.9 millions of euros 0.4 millions of euros

Operating Expenses 0.5 millions of euros 0.6 millions of euros

Underwriting profit (-0.6) millions of euros (-0.4) millions of euros

Profits before taxes (-0.3) millions of euros 0

Profits after taxes (-0.3) millions of euros 0

Table 4: Financial Data of ERGO Life at 2016 Source: Data from research

We can notice an increase in the gross registered premiums and in the net accrued premiums by 0.4 and 0.3 million Euros respectively. Unfortunately, the compensation costs and operating expenses of the company were increased and as a result, the underwriting profit was formed in minus 0.6 million euros in the year 2016. This reduction was not particularly unexpected since the previous year the underwriting profit was already negative in 0.4 million Euros. The company failed to prevent this negative result. Finally, the profits after taxes were formed to minus 0.3 million Euros. The company suffered a loss, compared to the previous year 2015 when the company had a neutral economic situation.

ERGO Group in Germany, taking into account the financial details of its subsidiary and acknowledging its weaknesses, decided the merging of the company with the other two companies of the group in Greece. The purpose of the merging of company with the ERGO Property and ATE Insurance was the creation of a new company that could gain a large share of the marketplace.

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5.3 Financial Analysis and Information Systems of ATE Insurance

ATE Insurance offered coverage on assets, as well as liability insurance for accidents, injuries, and damage to others or their belongings. The organization covered a number of things, including auto insurance, home insurance, marine insurance, and professional liability insurance. The ERGO Group successfully completed the acquisition of ATE Insurance continuing its international growth strategy. This acquisition makes ERGO the largest property-casualty insurer in the Greek market. The purchase price was 90.1 million euros.

ERGO was convinced of the potential of the Greek insurance market, although the economic situation of the country was difficult in recent years. The total penetration of company in Greece was much lower than compared to other EU countries. The Greek insurance market had large profit margins for companies that would choose to pursue an expansionary strategy, especially in the property-casualty segment. ATE Insurance was sold in 2016. With its strong sales network, ATE recorded a premium income of 125 million euros in 2015, thereof 91 million euros in property-casualty insurance. Having received all necessary regulatory approvals, ATE Insurance became a member of the ERGO Group.

The capitalization of the company during 2016 was fully covered the capital solvency requirements and the minimum capital requirements, in accordance with the Solvency II directive, which entered into force in the same year. In addition, the company's capital adequacy ratio was 126.3% for capital requirements solvency, or otherwise had SCR = 68.5 million Euros, and with 265% for the minimum capital requirements. Τhe sale of the company can be interpreted as the inability of ATE Insurance to cope with its obligations, the non-existence of available cash reserves and the non-existence of profits.

The financial statement of company published in 2015, shortly before its acquisition by the ERGO Group, referred to various critical weaknesses of ATE and in particular to the negative development of its operations, highlighting the competition among the insurance companies as the main cause which led to the largest reduction in the number of insurance contracts. The competitors of ATE had increased the supplies of the insurers with the company losing a significant portion of the market from the promotion of competitive insurance packages

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

through the insurance offices. ATE in its effort to react to the pressure of competition had a small increase in the supplies of insurers in order to maintain its portfolio. This resulted in the stabilization of reduced production but without being able to increase its profitability.

In the following table, we present some basic financial data of ATE Insurance in 2016 in order to have a more detailed presentation of the company as well as its strengths and weaknesses that led it to merge.

Financial Data at 2016 - ATE Insurance

Financial Data 2016 2015

Gross Registered Premiums 114 millions of euros 122 millions of euros Net Accrued Premiums 98.8 millions of euros 103.5 millions of euros Operating Expenses 41.1 millions of euros 28.1 millions of euros Human Resources 155 171 Underwriting profit (-31.2) millions of euros 21.6 millions of euros Profits before taxes (-2.1) millions of euros 21.7 millions of euros Profits after taxes (-4.3) millions of euros 23.3 millions of euros Capital Reserve (-840) millions of euros 18.9 millions of euros

Table 5: Financial Data of ATE Insurance at 2016 Source: Data from research

The year 2016 was characterized by a highly competitive environment due to the contraction of the insurance market in Greece, as a result of the economic crisis that the country faced. ATE Insurance showed a reduction in gross registered premiums from € 122 million in 2015 to 114 million euros (-6.6%).

We can observe from the table above that the net accrued premiums decreased from 103.5 to 98.8 million euros. Also, the operating expenses increased from 28.1 to 41.1 million euros (+ 12.7%). The operating expenses include staff fees and expenses such as salaries, the compensations of those who stopped working in the company since the employees were reduced from 171 to 155, the fees of third parties, the benefits to third parties, the amortization of fixed assets, rents, taxes, forecasts and finally other expenses related to the

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operation and management of the insurance company.

In addition, the underwriting profit of ATE Insurance was equal to minus 31.2 million euros, which means that the company presented a loss and not a profit in the year 2016 in contrast to the previous financial period in which it had managed to have a profit of 21.6 million euros. As a result, the company chose the solution of merger because it suffered a large loss that it could not manage on its own due to a lack of capital reserves.

The company's technological infrastructure could not be described as one of the most modern in the market. However, during the last years the company had invested heavily in the development of its information systems in an effort to digitalize its operations. ATE Insurance started to consider the information systems as a foundation for conducting business and also survival. Existence can be difficult without extensive use of information technology. In order to become more competitive and efficient, ATE tried to digitalize all core business processes and relationships with customers, suppliers, and employees.

Many times the investment in information systems is not associated with optimized financial performance in the short term. It takes time for a digital transformation or an information system to yield positive results in the balance sheets of a company. ATE Ιnsurance took long to realize the shift in the economy towards digital transactions.

In the decade 2000-2010, the competing companies of ATE had invested significant funds in the development of their information systems. In the same decade, ATE's investment portfolio did not include investments in the technology sector. In the period 2010-2015, a significant effort was made by the company to digitalize and base the sale of its products through information systems. Unfortunately, as mentioned above, it takes a long time for information systems to be able to effectively simulate all the operations of the company.

Before the acquisition of the company, the following problems were observed in the technological infrastructure of the company:

✓ Network Security/Data Security: ATE did not have a complete inventory of all of the IT assets that they had tied into their network. This is a massive problem because 60

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

the company could not ensure the security of its network

✓ Data Backup Issues: Delayed recovery process due to backup tapes or disks being stored offsite

✓ Lack of IT strategic plan: The IT strategic plan of ATE insurance had not outlined how the IT strategy relates to the organization's overall business objectives.

✓ Hardware & Software Issues: Many digital resources were no longer readable because of its archaic format.

✓ Equipment: The company had acquired many over-priced softwares and hardware products that could not be incorporated into its network. As a result many of them became useless.

We cannot say that the information systems used by ATE helped the company until its acquisition by ERGO. It is important to note that ERGO withdrew all information systems of ATE, preferring to invest in its own technological infrastructure. ERGO was most interested in the insurance portfolio of ATE Insurance.

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5.4 Financial Analysis of ERGO Insurance Group before and after merging

In this section, we present the process of merging of Ergo Property, Ergo Life and ATE insurance, which started in December 16, 2016 and its approval was completed on January 2, 2018 with the creation of Ergo Insurance. The following table depicts the financial data of the company before and after merging.

ERGO Insurance - Financial Data before and after Merging

ERGO at 2017 after it's merging Financial Data ERGO at 2016 before the merging with Ergo Life and ATE

Gross Registered Premiums 265,1 millions euros 246,2 millions euros

Net Accrued Premiums 223,6 millions euros 209,0 millions euros

Compensation Costs 122,7 millions euros 120,3 millions euros

Operating Expenses 84,1 millions euros 82,0 millions euros

Human Resources 508 413

Underwriting profit (-1,9) millions euros 14,4 millions euros

Investment Result 48,3 millions euros (-5,1) millions euros

Profits before taxes 24,9 millions euros 11,8 millions euros

Profits after taxes 32,7 millions euros 10,7 millions euros

Table 6: Financial Data of ERGO after merging Source: Data from research

Before the merger, the gross registered premiums of the three companies (ERGO S.A, ERGO Life, ATE Insurance) were estimated at 265.1 million euros, according to the above sections. Then, in the year 2017, when the merger process took place, as shown in the above table the gross registered premiums were decreased by 7.1% and reached 246.2 million euros. This was mainly explained by the fact that there was a loss of premiums during the merger

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

because some customers refused to continue with the new company or they preferred another insurance service due to the increased competition in the insurance industry. More specifically, in the following diagram we depict the distribution of registered premiums in categories after the merging of company, the sum of which is equal to 246.2 million euros.

Figure 7: Gross registered premiums of Ergo Insurance at 2017 after the merging. Source: Data from research

We notice that the largest percentage of insurance premiums were held by automobile liability insurance with 38% and fire and material damage with 33%. Although these two categories cover the largest part of the company's insurance premiums, they were also the ones that caused the negative change in the total gross registered premiums, as mentioned above, since there was a decrease compared to the previous year (2016) by 11.4% for automobile insurance premiums and by 4.5% for fire and material insurance premiums. As a result, there was a decrease in net accrued premiums from 223.6 million euros in 2016 to 209.0 million euros.

The operating and administrative expenses of the new insurance company created by the merger also increased by 2.1% or 5.9 million euros, reaching the amount of 84.1 million euros. This is mainly due to the costs incurred by the process of merging companies, in terms

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of the cost of merger procedures, the cost of real estate, the renovation of the buildings, but also other factors such as the advertising of the new company and its benefits. The underwriting profit before the merger of the companies was 26.0 million euros for ERGO Property, minus 0.6 million euros for ERGO Life and minus 31.2 million euros for ATE Insurance, giving thus a negative result for the year 2016 before the merger took place. At this point, we can notice a positive effect of mergers and acquisitions, since ERGO Anonymous Insurance Company in 2017 managed to achieve a positive underwriting profit.

The human resources of the new company were reduced as expected due to the merger of the companies in order to reduce administrative costs. Most of the employees were transferred to the new company, continuing their work in the same or similar sector after appropriate training.

In the end the profits after taxes, that prove the profit or loss of an insurance company, were positive and equal to 10.7 million euros after the merging of ERGO and ATE Insurance. The profit of 10.7 million euros does not prove the success of the merging, due to the fact that in the previous year, in 2016, its profits after the deduction of any taxes exceeded the 30 million euros. The consequence of this downward trend was a sharp reduction of the investment result from 48.3 to minus 5.1 million euros at 2017, which came mainly from the impairment of the value of its investment properties of ERGO Insurance Company. The last year before the merger, the company had recorded significant investment income (48.3 million euros) from the sale of mutual funds and bonds, as reported in its financial position.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

5.5 The impact of information systems in ERGO Insurance after the merging

After the merging, the management of the group implemented huge investments in order to improve the technological infrastructure of the new company. As we stated previously the information systems of ATE Insurance and ERGO Life were deactivated since the company decided to rely on the advanced technological infrastructure of ERGO Property. The company today has developed information systems covering all its needs.

All the insurance premiums of company are sold electronically via an information system developed by Ergo (Ergo Sales Box). Ergo has a strong network of insurers and brokers which the clients can visit in order to buy a product. Τhe company has taken the responsibility to install and support the information system so the insurers are able to purchase the insurance product on behalf of their customers. The company has also developed an independent digital platform that allows users to purchase online insurance products, bypassing with this way the insurers. Also, the users of the platform have the ability to make all payments electronically.

Ergo made the strategic choice to invest in information systems following the market trend towards digital insurance. This means that the insurers that not have the willingness to follow the technology may have loss in their profits. This has many implications since as McKinsey’s research has showed only 4/5 of insurers in each segment share the majority of profits.

Ergo realized very quickly that the insurance industry has been swept up by these changes and is in the midst of a massive digital transformation. The information systems developed by the company digitize all its functions giving capabilities to insurers and clients to make motor insurance, home insurance, personal property, travel insurance, business insurance and health insurance.

The following figure depicts the insurance products provided by the company's information systems.

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Figure 8: Insurance products provided by Ergo information systems

It is important to be noticed the impact of information systems in the significantly reducing of the risk for insurers and policyholders. Information systems through the processing of financial data can predict any possible evolvements and future changes in the insurance industry. Insurance programs through data processing are more focused on the customer in order to cover his needs. Without a doubt, the change in risk creates new opportunities and dangers for insurers.

The evolution of information systems affects all operations of companies such the interactions with customers, the estimation of risks, and the design of products. It is important for companies to upgrade their technological infrastructure, educate their people in new technologies, and digitize any line of their business in order to meet the needs of market competition.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

The digital transformation in insurance industry

The company acknowledges the impact of information systems in business and wants the new company after the merging to correspond to the increased customer expectations. Ergo wants to offer simpler and more compelling products through the company's digital information system, providing a truly omnichannel experience. Insurers want to:

✓ Digital Innovation. The digital innovation increases the abilities of insurers to provide their customers with innovative and attractive products. In order to achieve these expectations, modern information systems offer interaction with customers, personalize user experience, data mining, well-informed decisions, and business analytics. The continuous training of insurers with new technologies is the necessary condition in order to achieve the digital transformation in the insurance sector.

✓ Cloud adoption. Digital transformation has limits that are associated with the limitations of the existing technology. The large amount of data that a company has to manage requires huge storage space and great computing power. Most of the time companies have not the willingness or the ability to create the necessary technological infrastructures in order to be capable of managing a vast amount of information. The adoption of cloud technologies made the companies more flexible due to access to huge storage databases. Cloud today is the core of digital transformation.

✓ Service-enabled. Digital services should focus on customers by providing personalized solutions always based on their needs. The services should be of high quality and available to the consumer throughout the day

Ergo provides insurance products through its digital systems. These systems have the ability to process huge amount of data, evaluate the needs of each customer separately, collect data from different sources, and make the interaction between insurers and clients more efficient. Through these systems, insurers can offer their clients modern and simplified products in different areas of general insurance.

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Ergo combines its industry experience, software, hardware, and services and with its strategic partnerships with different vendors offers a fully integrated information system with the following capabilities:

✓ digital engagement platform for customers ✓ Modern user interfaces that are fully configurable by the system administrators, including the billing and claims systems. ✓ Ability to evaluate products and identify possible deficiencies ✓ Data analytics offering information for the consumer preferences ✓ A fully integrated environment including cloud computing, data mining, secure telecommunications, safe networks, cybersecurity, agile software, and disaster recovery techniques ✓ 24x7 daily support for all operations units (web application, technological infrastructure, network issues, cybersecurity)

Information Systems: An opportunity for change in the insurance sector

Information systems are changing the traditional interaction of clients with their insurance company. Due to the strong competition and the increased regulatory pressure in the insurance sector, companies consider the information system as a great opportunity to maintain their growth. The companies that embrace new technologies will gain great benefits.

On the other hand, many companies are trying to follow the digital revolution without having a clear strategy. We can notice that the majority of firms have the digital transformation in their priorities that mainly focuses on the removal of legacy systems or upgrading existing technologies. The problem is that all these initiatives are made without some clear strategic planning that focuses on the real business needs of the companies. Most of the time, these investments are reminiscent of product recycling.

The rewards for insurance companies that achieve digital transportation are remarkable. Insurance companies should focus on the following issues:

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

✓ Customer-centric policy coverage: It is significantly important for insurance companies to have the necessary information in order to evaluate the possible risks and provide solutions based on the needs of each customer. The recent achievements in telematics have allowed the installation of digital equipment in vehicles that record the driving behavior of the driver. The driver behavior can evaluate for further risk assessment. Safe driving involves less risk for insurance companies. On the other hand, the superficial driving contributes to the increase in risk. In the future, companies will have the ability to offer products that reflect to the daily habits of customers.

✓ Innovation: New entrants in the insurance industry have changed the insurance market. By investing heavily in technology and innovation, new firms are trying to increase their market share from traditional insurance organizations. New entrants have developed innovative information systems with the aim of attracting new customers, especially the younger generations who are more familiar with the technology. They offer digital insurance products and services based on the digital profile of their clients. Traditional insurance companies in their effort to compete with the new entrants have invested significant funds for their digital transformation. The result is that market competition benefited consumers with new and innovative insurance products.

✓ Big data analysis: The amount of data that companies will manage in the coming years will grow. The full digitization of economic activity will inevitably increase the volume of information. The big challenge for the insurance industry is to be able to manage the generated information by offering better products and upgraded services to their customers.

✓ Vendor strategic alliances: In recent years, insurance companies have increasingly sought for possible strategic alliances with vendors from the technology sector. These alliances will allow them to upgrade their technological infrastructure.

We will proceed below with the impact that information systems have had on the company's profitability after merging. More specifically we want to evaluate whether the transfer of the

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company's economic activity to selling insurance products only online and through its information systems affected sales.

As we observed previously before the merger, the gross registered premiums of the three companies (ERGO Property, ERGO Life, ATE Insurance) were estimated at 265.1 million euros.

The ancestor of the current company, the Ergo Property had 145.9 million euros sales of gross registered premiums with the largest percentage coming from sales of products online through the company's information systems. With a strong technological infrastructure, 92% of sales came exclusively through the company's information systems.

Εrgo Life, the next subsidiary of the group had problems with its technological equipment, having had legacy systems that did not cover the needs of the insurers and the market. Εrgo Life had 1.6 million euro sales of gross registered premiums with 69% of them coming through information systems.

ATE Insurance had 114 million euros earnings from sales of gross registered premiums, with 61% of them coming from sales of insurance products through information systems. Despite ATE's efforts to digitize its services, it has failed to promote the vast majority of their products online.

Ergo Insurance which was created after the merging of the three companies in 2017 had 246,2 million euro earnings from sales of gross registered premiums with 98% of them being sold via information systems. Τhe possession of upgraded information systems has allowed the transfer of all economic activity of the company via its digital systems.

The following graph depicts the sales percentages of insurance premiums via information systems for the merged companies, as we saw previously.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Figure 9: Sales percentages of insurance premiums for the merged companies via information systems Source: Data from research

Although the company proceded to complete digitalization of its operations, this fact did not translate into an explosion in its sales. As we saw previously, the new company after the merging recorded revenue of 246.2 million euros from insurance premiums sales in 2017. The use of information systems did not benefit the new company in the short term targets and a decline in its profits was recorded. This is due to the failure of Ergo to absorb the ATE's customer base.

We must note the culture of the Greek consumers which is characterized by high confidence in public companies such as ATE. The guarantee that the greek state provides, despite the bankruptcy of 2010, generates higher confidence to consumers. Consumers would definitely be cautious with a private multinational company, despite its strong international portfolio in different markets.

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Τhe digital profile of ERGO seems that not excited ATE's client. As we mentioned earlier, the digital sales of ATE insurance products through information systems reached 61% of the total sales. The remaining 39% of ATE's customers insisted on non-digital insurance.

The author believes that these clients of ATE, whether they were insurers or individual customers, were not thrilled by ERGO's digital services. The reasons range from technological illiteracy to the avoidance of the strict framework set by the information systems since machines never make mistakes.

However, the technological superiority of ERGO certainly did not help to attract ATE's customers and it certainly had a share in the decreasing gross registered premiums which reached 246.2 million euros when the merger process took place.

In the next graph, we can observe the total profits of Ergo Insurance that came from the sale of premiums for the period 2017-2019. The company after the merging continued its profitable course with 249,8 million euro earnings from gross register premiums in 2018 and 253,3 million euro in 2019.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Figure 10: Gross Registered Premiums of Ergo Insurance during the period 2017-19 Source: Data from research

Today all the products of the company are promoted through its information systems. Having a strong network of insurers that have been educated on its digital systems combined with younger generations' familiarity with technology, it seems that the company's choice for its full digitalization will be justified in the long run.

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6. Conclusions

The purpose of this thesis was to investigate the impact and the contribution of information systems on companies. Our research focused on companies that followed the merger and acquisition process because we considered that this area could provide substantial conclusions about the impact of information systems on companies before and after the merger. In addition, we wanted to highlight the positive as well as the negative effects of mergers and acquisitions on organizations. The impact of mergers and acquisitions for the development of the local economies is indisputable hence the further research of the impact of M&A on the economy is very important.

The thesis starts with an extensive literature review in mergers and acquisitions and continues with a description of the structure of insurance companies. Then, we present a literature review on the technology of information systems, focusing on their contribution and their impact on the business world.

The theoretical part of the thesis describes the definition and the meaning of the merge and acquire theory. We note the basic characteristics of an M&A procedure which are the strategic cooperation between two firms that have as main purpose their unification and the continuation of their operation through a new entity. The negotiations during an M&A procedure are complicated and the buyer has the greatest degree of influence. There are different types of M&A and each of them serves different economic expediencies. The main motivations behind a merger typically include the willingness of organizations to grow their market share, the lack of capital that mainly leads companies to these partnerships, and the acquisition of better creditworthiness from the markets, as it has been described in chapter 2. The theory also shows that the success of a merge or acquire is not always guaranteed and depends on many factors such as the capital rate of return, the economic situation of the host country, the size of the market, and the strategy that is followed by competing companies.

Apart from all of these important factors mentioned previously, the most fundamental issue for a firm seeking a merger is to achieve the maximization of its profits. Bitzenis (2012) has described the majority of the fundamental motives that lead firms to make mergers and

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

acquisitions such as increased market share, gain new markets, acquire new technologies, reduced taxes, and low costs. According to Bitzenis, Papadimitriou, and Vlachos (2012) firms will prefer to invest on opportunities that give the highest probability of “success on their business plan”. The motivations of firms are always under change based on the strategy that each company has, taking into consideration the country in which the firm operates in and the general characteristics of the market.

The literature review refers to some other important factors that motivate organizations to implement a merger such as the labor cost, the education level of employees, the culture, the political situation, and the financial stability. According to Bitzenis (2012), firms have interests based on which they develop their strategies without there being a unified model that determines their investment choices.

Insurance companies are businesses that actually offer a product, the insurance. Because the demand for insurance products is high, the competition between insurance companies is intense which intensified after the liberalization of the markets in the ‘80s. Today the competition is at its peak with many organizations resorting in mergers and acquisitions in order to strengthen their market position. At the same time and in the same competitive environment, the evolution of technology and information systems has created opportunities for diversification and competitive advantage. In fact, insurance companies have a great dependency on information technology, in a way that any technological development directly affects the core of the business.

Information systems were adopted very early by insurance institutions. In fact, in the early stages, when the use of computers was negligible, their organization was based on photocopies, archiving, folders, and material warehouses. Today there is no insurance company that does not own and apply an information system. The scope and the number of insurance operations is now quite complex, therefore only an information system can be implemented. The number of insurance premiums is so large that only through information systems is it possible to manage and monitor the insurance process. Finally, there are so many areas of administration and day to day issues that need to be addressed that the absence of an information system would create chaos and would be inefficient.

Postgraduate Dissertation 75 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

Information systems have created opportunities for many companies to increase their profits and conquer the market. Many companies seized these opportunities and had impressive performances. The future further belongs to information systems. Artificial intelligence systems will organize transactions, make formal decisions and propose solutions. They will be based on their high processing power of modern computers and will be able to reflect the real financial situation of the business to managers. Today online insurance transactions over the internet may give us a first impression of what is to come in the world of insurance information systems.

In this thesis, we focused on the Greek insurance industry due to the huge investments in information systems that was made in the last decade. These investments aimed at the full digitalization of insurance companies and were due to the high competition in the insurance industry. Also, due to the economic recession and the difficulties that every company operating in Greece faces, the pressure was exerted in all areas of production, such as the European Solidarity Directive, which is now applied to every insurance company. As a result, many businesses choose the process of mergers and acquisitions, seeing it as a safety valve for future survival in the ever-changing business environment. Companies that did not invest in information systems and in their digitalization are faced with serious problems resulting from market competition and from not being able to follow the market leaders.

We examined the case study of Ergo, one of the most recent and large mergers in the Greek insurance industry, and the contribution of information systems in the new company. The company's successful merging and the effects of information systems in the digital transformation of the company will be used as a guide by other companies in the industry in future mergers.

In this case study, the merger of ERGO Insurance Company, ERGO Life, and ATE Insurance had positive effects since the former strengthened its position and the other two escaped the risk of bankruptcy, due to lack of reserves, big damages and having obsolete information systems. In addition, it was found that the financial data of the new company are significantly improved, at least in terms of the technical net result, which was negative in total before the merger of the three companies. The company after the merger showed profitability that was limited in the years 2016 and 2017 due to the coverage of the damages for the companies 76

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Ergo Life and ATE Insurance.

ERGO Property before its merger had the necessary capital adequacy to cover its capital requirements. The company increased its production with the increase in the sales of insurance premiums in 2016 from 114.0 million euros to 120.3 respectively. Also, the company's compensation costs, as well as the operating expenses, were increased in 2016 due to the increase in the company's staff. The technological infrastructure of the company was adequate and ensured the execution of all its operations online. The company held 19% of the Greek insurance market in premium sales with the strategic goal of expanding into the market through the acquisition of portfolios of competing companies.

On the other hand, Ergo Life at 2016 was facing significant liquidity problems without being able to find vital space in the area of health insurance in order to increase its sales. In 2016, the company had a dramatic increase in its compensation costs and operating expenses. The net profits of the company were decreased by 0.3 million Euros and the company's reserves were not sufficient to cover future liabilities. Apart from that, the information systems of the company were obsolete and there was a need for huge investments in the technology infrastructure of the company. ERGO Group in Germany, after consideration of all the financial details of its subsidiary and acknowledging its weaknesses, decided the merging of the company in Greece. ATE chose the merging solution due to the large losses at 2016 and the lack of capital reserves.

ATE Insurance was a historical company in the Greek insurance sector. The company in the year of 2016 faced significant financial difficulties. More specifically, ATE Insurance faced a reduction in gross registered premiums from € 122 million in 2015 to 114 million euros (- 6.6%). Apart from that, in 2016 the operating expenses were increased by 12.7% as well as the compensation costs to third parties. The company, although it had modern information systems, failed to translate this into profitability as it did not convince insurers and policyholders to trust its digital platforms. ATE chose the merging solution due to the large losses in 2016 and the lack of capital reserves. ATE proved the theory that companies must find alliances in order to survive during the periods when they face difficult financial problems.

Postgraduate Dissertation 77 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

During the year 2017 when the merger took place, the gross registered premiums of the new company were decreased by 7.1%. The confidence of the Greek customers in public companies such as ATE made them reluctant to trust a private company. Apart from that, the new company imposed the registration of insurance premiums only through information systems with the majority of the insured not being familiar with the use of information systems, a fact that was recorded in the fall of the premiums. At this point, the theory was confirmed which points out that mergers and acquisitions require some time to return profits to companies. Sometimes, as the case of ERGO, the customers may not prefer the new company and turn to competitors. Nevertheless, the company after the merger continued to increase its profitability until today, gaining new markets with the help of ATE portfolios.

The company after the merging has invested in information systems that allowed it to carry out all its financial activities online, with the purchase and payment of insurance premiums becoming available only online. Ergo Life and Ate Insurance had dysfunctional information systems that did not allow the acquisition of premiums for the clients through information systems. In many cases, the premiums of customers were implemented through excel forms. Often the top management of ΑΤΕ Insurance did not have a clear view of the total premiums that were sold daily. In addition, Ergo Life and ATE Insurance had information systems that could not be integrated into the core of the company. As a result, many systems failed to be used or caused problems to the existing technology infrastructure. Due to all of this situation, the company decided to withdraw all the information systems of pre-merge companies and invest in the existing systems of Ergo, which could support the digital transformation of the company.

The company continues to invest in its technological infrastructure until today, having associated its profitability with the use of information systems. Finally, Ergo after the merger does not face direct dangers since it has high reserves, the solvency ratios are satisfactory and it holds a strong customer base. In the future, Ergo will focus on the areas of life and health where there is intense competition.

Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo

Postgraduate Dissertation 79 Georgios Angelopoulos, The contribution of Information Systems and their impact on companies. The case study of Ergo Group

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Author’s Statement: I hereby declare that, in accordance with article 8 of Law 1599/1986 and article 2.4.6 par. 3 of Law 1256/1982, this thesis/dissertation is solely a product of personal work and does not infringe any intellectual property rights of third parties and is not the product of a partial or total plagiarism, and the sources used are strictly limited to the bibliographic references.