Munich Re Hosts ‘ERGO Day;’ Highlights Primary Carrier’s Expansion

Munich Re held an “Investors’ Day ” in London, yesterday, Dec. 12, which featured a presentation of its strategy regarding for ERGO, its primary insurance business.

Munich Re CEO Dr. Nikolaus von Bomhard told investors: “With ERGO, the Munich Re Group can cover the entire value chain in the global risk market. In the process, we leverage value and cost synergies, and also reduce the risk-based capital required in the Group through improved diversification.”

He also explained that “ERGO’s business is not subject to the reinsurance market cycle and so provides result stability. ERGO is consequently an integral part of the Munich Re Group and will contribute significantly to achieving the financial objectives of our ‘Changing Gear’ program.”

Dr. Torsten Oletzky, Chairman designate of ERGO’s Board of Management, set out plans to firmly establish ERGO “in the top class of European primary insurers within the next five years.” That scenario envisions ERGO becoming “one of the leading companies in the European market in terms of customer satisfaction, profitability and integration experience” by 2012. Oletzky also indicated that he is committed to delivering ERGO’s share of the Munich Re Group’s earnings per share growth target of over 10 percent per annum on average up to 2010.

The goal for the business plan calls for ERGO is to post a normalized profit of more than €900 million ($1.323 billion) by 2012 – an increase of around 90 percent on 2006 – and to attain a sustainable RoE of between 12 and 15 percent. The bulletin noted that the “normalized targets do not include any positive one-off effects and assume a sustained return on investments of 4.5 percent p.a. Within the same period, premiums in primary insurance are to grow to over €23 billion [$33.8 billion], compared with €16.1 billion [23.67 billion] in 2006. This figure does not include profit and premiums from international health business.”

Sounding a positive note, Oletzky pointed out: “Our results are excellent; we want to ensure they stay at this high level in a less favorable environment – that is, without the benefit of one-off positive effects from tax or investments. We are recording profitable growth in international business, and are looking to achieve such growth in the German market as well. At the same time, we would like to expand the share of international business.”

Summing up Oletzky’s plans, Munich Re said he “intends to strengthen the sales organization, to realign ERGO’s strategy in the life insurance market, and to encourage an entrepreneurial mindset among staff, with the aim of becoming faster and more innovative. The full implementation of value- and risk-based management will provide the foundations for achieving these goals.

“ERGO is to continue with its efforts to improve competitiveness through cost reductions in all segments on an ongoing basis. To optimize the capital structure, as previously announced, the ERGO Board of Management will propose to the Supervisory Board that a dividend of €1.0 billion [$1.47 billion] be paid in 2008. This measure is to be financed to the necessary extent by taking up hybrid capital, the exact amount of which has yet to be decided.”

Source: Munich Re – www.munichre.com