We are not disinclined to take the M&A route

Written by Sitanshu Swain | Updated: Jun 30 2009, 04:55am hrs
Torsten Oletzk
With a premium income amounting to 17.7 billion euros in 2008, the ERGO Group is one of the major insurance groups in Europe. Worldwide, ERGO, which expanded its size by steady acquisitions of other companies is represented in more than 30 countries, majorly in Europe. In Europe, ERGO is ranked No 1 in the health and legal expenses insurance segments. However, recently the insurer which is also a subsidiary of Munich Re, the second largest global reinsurer, for the first time has decided to foray into Asia. It has thus far ventured into India, China and South Korea.

The insurer has already set up a general insurance joint venture with housing finance major HDFC and is looking for a partner for life insurance operations in the country. Last week, the insurer had organised a media summit of Asian journalists at companys headquarters at Dsseldorf in Germany, Torsten Oletzk, chairman, ERGO Group, spoke to FEs Sitanshu Swain about the companys plans for India.

Why did ERGO decide to enter Indian market

We see the Indian insurance market as a very attractive market. The recent liberalisation has resulted in a dynamic development and high growth. And there is more to come: Especially in the field of non-life insurance where we expect a further upside due to higher insurance penetration. The macro-economic environment is positive as well: It is expected that India will get out of the crisis and return to the growth path faster than other countries.

How do you see the existing regulations in the Indian insurance market

One of the most interesting issues in our view is whether the FDI cap will be increased from 26% to 49%. We would strongly support such an increase and we hope that the new government will now approve this regulation which has been set on track even before the elections. Another issue is the motor third party pool which needs to be reformed since it is highly in deficit.

What kind of synergy is Munich Re providing to Ergo in its operations

For us at ERGO , it is very positive to be part of the Munich Re Group. In the early stages of entering every foreign market, Munich Re's support was invaluable. Munich Re can - and does - provide market knowhow and contact to the relevant people. It's longstanding history and good reputation in many markets of the world opens doors for us. And we have won a lot of internationally experienced staff from Munich Re. Once operations are established, Munich Re offers reinsurance support which is - and this is very important to underline it - always at arm's length and adhering to the strict 'Chinese Walls Policy' of the Munich Re Group.

What kind of investment plans do you have (for next three years), considering the fact that you want have presence in all the three segments - life, general and health insurance

In the non-life segment, the joint venture with our partner HDFC is to grow its premium volume to more than 500 million euros (about Rs 3,300 crore ) by 2013. We aim for a market position among the top five private insurers - with 3,600 employees, 20,000 agents and a presence in 700 locations. I think this gives a good impression of the investments we are committed to undertake in the next three years. Regarding the life insurance business, it is our top priority to find a new partner. We are committed to building up a franchise which will rank among the top five private insurance companies. The activities in health insurance are in the management responsibility of Munich Re's new Munich Health division.

When do you think you will be to finalise your life insurance operations What kind of partners are you looking for

When we communicated our split-up with Hero - which was driven by Hero's decision to focus on its core business and was undertaken in a mutually amicable relationship - we had several calls from interested potential partners. At the moment, we are in the process of sorting out our options. In addition to starting a new greenfield unit, we would also not be disinclined to take the M&A route, i.e. buying a stake in an existing company if the international partner decids to leave the market. But we see it more important to find the right partner than to find a partner fast.

How do you plan to develop your general insurance operations in India Who has the management control over the Indian non-life insurance venture

HDFC ERGO, our Indian non-life venture, is an equal partnership between the JV partners. The company is developing very well which we see as confirmation of our mutual partnership approach. For instance, we have successfully launched a new home mortgage package product through HDFC Ltd, and the ERGO underwriting experience has led to a very successful renewal round in the commercial and industrial business as on April 1 with about Rs 85 crore of new business. We signed a bancassurance agreement with HDFC Bank in April 2009 and a cooperation agreement with Apollo DKV on the health insurance front in March 2009. So both partners bring in business ideas and develop the company further.

Don't you think that you are entering the Indian market a bit late when there is so much of competition

You see, in a fast-growing market like the Indian insurance market , there are ample opportunities for growth even for market entrants of the second wave like us. Tough competition is a very normal process in markets following liberalisation. We have experienced that in other markets as well. We position ourselves as specialists and know-how carriers. That means, we are able to compete in such environments by applying superior expertise, e.g. in underwriting and risk management. We have a proven international track record of operating profitably even in highly competitive market environments.

Would you like to increase your stake to 49% from 26% after Indian regulations allow it

Yes! As I mentioned, we see HDFC and us as equal partners - and would like to reflect this in the shares of ownership as well.

Are you also open to acquisitions in Indian market

Again yes,we are open to it, but not forced to do so. It is always of interest to look at such opportunities when they arise. But the company has to fit to our strategy and to our joint venture partner's considerations.

How are you ensuring that you are not violating corporate governance norms as a primary insurer with an affiliation with Munich Re, which is a major player in the Indian reinsurance market

We have a proven track record in the Munich Re Group to strictly observe our Chinese Walls Policy. No customer data goes from the reinsurance department to the primary insurance department or vice versa. When ERGO was founded in 1997 and Munich Re became one of the dominant players in primary insurance in Germany, there was some debate over this issue. Today, nobody discusses this any longer in Germany, and Munich Re lost not a single client due to ERGOs role in the primary insurance market. Munich Re's reinsurance customers trusted the company - and rightly so.