ERGO 48 (50022335) GROUP ANNUAL REPORT 2009 REPORT GROUP ANNUAL Overview of ERGO Insurance Group 2009 2008 Change previous year (%) Total premiums € million 19,050 17,711 7.6 Gross premiums written € million 17,470 16,578 5.4 Expenses for claims and benefits € million 16,114 13,893 16,0 Investment result € million 4,401 2,871 53.3 Result before impairment losses of goodwill € million 734 929 – 21.0 Consolidated result € million 173 73 135.6 Investments € million 113,277 108,191 4.7 Technical provisions (net) € million 109,197 101,809 7.3 Equity € million 3,857 3,568 8.1 Full-time representatives 21,963 21,709 1.2 Salaried employees 33,152 31,508 5.2 Group earnings per share in accordance with IFRS € 2.14 0.76 183.0 Dividend per share € 0.60 –– With premium income of € 19bn, ERGO is one of the ERGO has the right sales channel for every client: major insurance groups in Europe. Worldwide, ERGO almost 22,000 self-employed full-time insurance agents, is represented in more than 30 countries and concen- staff working in direct sales, as well as insurance bro- trates on Europe and Asia. In Europe, ERGO is no. 1 in kers and strong cooperation partners – both in Ger- the health and legal expenses insurance segments, many and abroad – look after clients. In addition, and is among the market leaders in its home market of ERGO maintains a far-reaching sales partnership with Germany. More than 50,000 people work for the Group, the major European bank UniCredit Group, both in either as salaried employees or as full time self- Germany as well as in Central and Eastern Europe. employed insurance agents. ERGO is part of the Munich Re Group, one of the lead- ERGO offers a broad range in insurance, provision and ing reinsurers and risk carriers worldwide. Under the services. More than 40 million customers, of which umbrella of Munich Re, both primary insurers and 20 million are based in Germany alone, place their reinsurers capitalise on opportunities to turn risk into trust in the security and expertise in the various lines value. The largest part of the group’s investments of business provided by ERGO and its experts. ERGO amounting to approximately € 182bn, of which € 113bn offers customers integrated insurance and service is accounted for by ERGO, is managed by the joint concepts for their individual needs. asset management and fund company MEAG. At the end of 2009, Munich Re held a 99.69% stake in ERGO, and intends to extend this to 100% in the course of the year 2010. 2009 ERGO Insurance Group Group Annual Report Contents 3 Letter to shareholders by the Chairman of the Board of Management 6 Report of the Supervisory Board on the 2009 financial year Management Report 12 Declaration on Corporate Management 28 ERGO Insurance Group 33 Governing bodies 35 Parameters 42 Business performance 42 Overview and key figures 50 Business segment development 60 Financial position 64 Other success factors 69 Prospects 74 Risk report 88 Shares in ERGO Versicherungsgruppe AG Consolidated 90 Consolidated balance sheet as at 31 December 2009 Financial Statements 92 Consolidated income statement for the financial year 2009 93 Statement of recognised income and expense 94 Changes in Group equity 95 Consolidated cash flow statement for the financial year 2009 96 Segment reporting 104 Notes to the Consolidated Financial Statements 222 Selected participating interests 226 Auditor’s report 227 Declaration of the Board of Management 2 ERGO Insurance Group Dr. Torsten Oletzky Chairman of the Board of Management ERGO Versicherungs gruppe AG Dear Readers, Dear Shareholders, Looking back, 2009 has been an eventful year. The volatile background of the economic and financial crisis has been a challenge for business people in all sectors. Insurers have succeeded in charting a relatively stable course through the crisis. Our company, too, did well in the previous year. The most important decision we made in 2009 was taken in November. We will be changing our brand strategy. In future, life insurance and property-casualty insurance will be renamed ERGO, and direct insurance will also carry the ERGO name. This wide range of services is complemented by our specialist insurers for health, legal expenses and travel insurance. Each of these is brought together under a single brand, giving them a sharper profile. The decision to abandon the German brands of Hamburg-Mannheimer, Victoria and KarstadtQuelle Insurance in favour of the ERGO brand was not taken lightly. However, we are convinced that this new brand presence is the right answer to the current challenges facing our Group, as well as creating more trans parency for our customers pertaining to the entire range of distribution channels. Rather than restricting themselves to a single distribution channel when it comes to choosing insurance cover, people now increasingly tend to select their route to their insurer on the basis of their current needs and their personal preferences in the specific situation at hand. The focus on the ERGO brand and the clear positioning of the specialist brands mean we can retain more customers in the Group when they are changing between various distribution channels. A further advantage is that our advertising and marketing will achieve a higher return in terms of familiarity and positive sentiment. Consequently, we will soon be making more out of the diversity of our distribution channels. Although we took this decision against the background of such long-term con- siderations, the actual timing was determined by the bankruptcy of Arcandor with its Karstadt and Quelle brands. This threatened to have an adverse impact on the business of KarstadtQuelle Insurance, which had its roots in the Arcan- dor group. ERGO has been the majority shareholder of the direct insurer since 2002, and since 2008 we have been sole owners. By renaming KarstadtQuelle as ERGO Direct Insurance, we provided an immediate resolution, and because we have thoroughly revised our entire brand strategy rather than just improving one aspect of it, we have created a convincing overall concept for the future. This also means we have harmonised our brand strategy in Germany with the strategy we use in international markets. ERGO Insurance Group 3 In 2009, we successfully completed an important chapter in Group develop- ment. Since October, ERGO Versicherungsgruppe AG has been the legal employer of most of our back-office staff in Germany. This means that our employment contracts now also reflect our unified structures and processes, which is an important step for the consolidation of our identity and company culture. Both these factors are becoming inceasingly important in the compe- tition for well-qualified, motivated employees. In order to be successful here, we attach great value to the compatibility of professional and family life – a commitment honoured once more by the Hertie charitable foundation with its “berufundfamilie” (profession and family) certificate. In 2009, we successfully continued to pursue our long-term goals in relation to our competitive position. For example, we have worked further on reducing costs. We were able to conclude negotiations successfully with co-determination committees. The majority of the reduction of a total of 1,800 posts announced has been achieved in line with socially acceptable terms. We have also successfully concluded two major integration projects, namely the incorporation of ERV, which deals with ERGO’s travel insurance and which we had acquired from Munich Re at the beginning of 2009, as well as the Bank Austria Creditanstalt Versicherungen. Once again, our extensive experience arising from the internal integration process and the incorporation of new companies and areas of business showed its worth. The integration of the Austrian insurer is just one of many examples of our numerous international operations, which grew by 25.4 percent to 5.1 billion euros, continuing the positive trend. Here, we are continuing with the important distribution channel via banks, which we further strengthened in the past year. Regarding the DnB Nord bank, we have acquired an exclusive partner for the sale of life insurance in the Baltic States. In Greece, the Piraeus Bank will sell property insurance for us on an exclusive basis. Nevertheless, there were fewer opportunities than expected to continue the expansion of our business in new markets, where the economic and financial crisis significantly reduced our room for manoeuvre. Above all, there were very few attractive opportunities for acquisitions, because both potential vendors and potential joint venture partners were reluctant to put themselves forward. For instance, we had to accept a setback, because our cooperation partner in life insurance, the Indian Hero Group, withdrew in order to focus on its core business. 4 ERGO Insurance Group At the same time, the trend on the capital markets led us to focus even more strongly on long-term security in the context of our risk-aware investment policy. Our benefit promises to our customers are of a long-term nature and constitute the core of our insurance business. For this reason, sustainability is more important to us than short-term yield. We are transparent to our cus- tomers, too, regarding this sustainable policy. As an example, we were the first on the German market to publish the valuation reserves of our two life insurers on the Internet on a monthly basis. My overall verdict on 2009 is a positive one. Apart from the activities I have described, we are able to present a solid profit, even considering the crisis. Total premium income increased by 7.6 percent to 19 billion euros. Our acqui- sitions had a positive effect, but declining exchange rates in important inter - national markets such as Poland or Turkey were negative.