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Sustainability

Besides our current profit-based activities we intend to secure the sustainable eco- nomic success of our Group with factors which cannot be measured in financial ratios. These include:

쐍 open dialogue with our clients,

쐍 our continued commitment to new, needs- oriented products and solutions,

쐍 our corporate responsibility towards our employees, society and the environment, as well as

쐍 efficient business processes for managing our company as well as identifying and avoiding risks.

Clients and client relationships

Our products are geared towards all client groups – private clients as well as small and medium-sized businesses and industrial clients. They can select from all product groups: life and health insurance, property and casualty insurance, legal expenses insurance. In addition, our agents offer fund products – available from MEAG as the asset management company of Munich Re and ERGO – and bank products from our co- operation partner, the UniCredit Group. Advisory activities and services round off the portfolio.

Our clients can thus cover their needs con- veniently and comprehensively from one source in respect of the financial services of tried and trusted providers.

The entire range of sales organisations at ERGO ensures that our clients are able to approach the Group in a way which suits them best. By means of stronger sales sup- port we intend to improve our competitive position even further. A comprehensive IT

platform for sales will gradually be intro- duced in Germany which will assist the sales and administrative processes and speed up the introduction of new products.

In order to guarantee an even better support service for our broker clients in the future we have concentrated broker sales of our Ger- man brands at the ERGO level. This means that ERGO has one of the largest broker sales networks in Germany. In addition, we are setting up a competence centre for bank sales.

Our field staff place great importance on support and service – not just during their sales pitch alone. Even after the contract has been signed our clients are convinced by the good service we provide, for example a fair and swift claims settlement process. Such situations in particular reveal the value of having a good insurance.

Client satisfaction and service by profes- sional client management of ERGO have been rated “good” in selected processes tested by the German Technical Inspection Association, TÜV. The quality of the claims management has been certified by the Ger- man Association for the Certification of Management Systems (DGS) according to DIN-EN-ISO9001 which involves controls and claims controlling, as well as regular on- site checks.

Research and development

Our main focus in research and development is to analyse and forecast demographic trends as these trends constitute important parameters for calculating policy terms and thus designing products. Furthermore, demographic change affects social security systems and thereby influences our clients’

needs for private provision. Our product development incorporates not only our own know-how but also the latest scientific find- ings.

The life insurers use to some extent their own mortality tables to have the customised data available for their specifically struc- tured portfolios. The health insurers adopt the mortality tables developed by the Association of Private Health Insurers. The knowledge of our actuaries regarding life expectancy of clients is constantly extended and updated by liaising with the German Association of Actuaries.

Staff

Our staff provide the basis of our success with their expertise, motivation and commit- ment. That is the reason why we rigidly pur- sue a strategy of developing their skills. There are approximately 50,000 people working full-time for our Group, either as salaried employees or as self-employed rep- resentatives. We offer our staff attractive jobs with future perspectives, and focus our attention on responsible tasks, a corporate culture which encourages performance and interesting opportunities for professional development in our internationally active organisation.

On 31 December 2008 a total of 31,508 (29,127) salaried employees were working for the ERGO Insurance Group, of which 24,944 (23,396) in back-office and 6,564 (5,731) as salaried field staff. The rise in the

length of service is 11.9 (12.4) years. The proportion of female employees as a per- centage of total staff increased to 55.5 % (54.3 %).

A number of structural initiatives were adopted within the ERGO Group in 2008 in order to secure long-term competitiveness, and these were implemented along with cor- responding personnel management mea- sures.

In order to permanently improve our com- petitive edge measures were introduced including the “Continual Improvement in Competitiveness” project, which aims to attain a further improvement in the adminis- tration expense and acquisition cost ratio as well as service quality in our home market. The target has been set to save € 180m in material expenses and labour costs by 2010, thereby achieving our target cost ratios by that deadline. This includes cutting 1,800 jobs. Against this background, the executive management of ERGO and the ERGO Group works council have come to agreement on an extensive overall package. Apart from important agreements to achieve target savings, it contains rulings pertaining to co- determination, such as the introduction of a Group social plan as well as a Group agree- ment on the subject of “compatibility of job and family”. The agreements envisage that there will be no forced redundancies among back-office employees and salaried field staff before 31 December 2012. As a result of the agreements reached with the works council we can now begin to implement the initiatives in good time. Notwithstanding

Other success factors

Yet another important topic of last year and the current year is the initiative “ERGO – one company”. It aims at incorporating in terms of labour law the organisational structure and workflow in Germany encompassing functions across the brands, which have been established over the past years. Staff working in insurance operations are to be given solely employment contracts with ERGO Versicherungsgruppe AG as from the end of 2009 and no longer with the various brand companies, as has been the case to date. Field staff employees and those work- ing in the sales departments for the brand companies will continue to work for their brand employer.

In addition, we were busy preparing for the integration of the ‘Europäische’ and Mercur in the ERGO Insurance Group during the year under review. Subject to negotiations cur- rently underway with the co-determination committees, this should be complete by the end of March 2009.

We still place great emphasis on vocational training. We intend to give young people in- depth training and to attract qualified and motivated staff to the ERGO Insurance Group on a long-term basis. In 2008 the ERGO Insurance Group and its agencies trained 1,399 (1,354) young persons, which corresponds to a ratio of 5.8 (5.6) % to total staff.

To assist our business ambitions, promoting and recruiting qualified school and college leavers who show potential for expert and executive positions is assuming an ever- increasing significance. In 2008 an ERGO- wide “Talent Placement Programme” was introduced where jobs are then envisaged both in Germany and abroad in various com- panies of the Group throughout the staff

Moreover, ERGO set up a pool of mobile international managers in 2008. These members are permanently prepared to be in a position to take up international assign- ments abroad.

Remuneration of the Board of Management

In order to avoid reiteration, we refer to the detailed statements on the remuneration of the Board of Management in the explana- tory notes [38] and [39] in the Notes, start- ing from page 182.

Social commitment

As a major internationally operating compa- ny the ERGO Insurance Group assumes social responsibility.

In 2008 the ERGO Board of Management decided on a new concept pertaining to cor- porate social responsibility, which stems from our core business of insurance. This means that ERGO will focus on assisting where people themselves wish to take over responsibility for themselves and others, as well as providing help in cases of need. Edu- cation, science, health, music and social affairs form the focal point of this concept. The action plan is initially conceived for Germany and the following brands: D.A.S., DKV, EUROPÄISCHE Reiseversicherung, Hamburg-Mannheimer, KarstadtQuelle Insur- ance and Victoria.

The societies “DASler helfen” and “Victori- aner helfen” take an active part in charitable projects. Primarily financed by small con- tributions made by the staff of D.A.S. and Victoria from their salary and commissions, they support social projects in Germany and abroad. Employees of Karstadt-

Madeleine-Schickedanz Children’s Cancer Foundation every year on action days which is then donated to research.

Hamburg-Mannheimer assumes social responsibility with the “Youth & Future” foundation, and the “Job Locomotive” pro- ject gives deprived youngsters career guid- ance. Each year Hamburg-Mannheimer offers three training jobs especially to the youngsters of this foundation. In 2008 the foundation celebrated its tenth anniversary, and in the year under review Hamburg- Mannheimer supported “children in need” in Germany and worldwide with a generous donation during the RTL TV donation marathon.

DKV has been working together with the Ger- man Hygiene Museum in Dresden for many years to promote people’s knowledge on health-related matters and to motivate them to lead sensible, healthy and responsible lifestyles. DKV also supports the Aids Pre- vention Programme of the Federal Centre for Health Education via the Private Health Insurance Association, and promotes infor- mational activities carried out by the Aids Foundation.

Together with the foundation “Tierra Nueva”, the Spanish DKV Seguros is involved with the microinsurance project in Ecuador, including setting up basic medical cover in the south of Quito. The foundation provides low-budget health insurance with the sup- port of DKV Seguros. Furthermore, the customer service centre of DKV Seguros is solely manned by physically handicapped

Environment

Protecting the environment has been an important topic to the ERGO Insurance Group for many years, and in terms of eco- logical components it is part of the corpo- rate responsibility. We joined the United Nations’ initiative “Global Compact” as part of the Munich Re Group in 2007. This brings with it the commitment to promote and further develop environmental protection measures. For instance, the recording of environmental key data was improved still further. This data also provides the basis for the sustainability ratings of the Munich Re Group. Achieving synergy effects and recip- rocal potential for improvement between the ERGO companies are checked and imple- mented on a regular basis.

As part of the ERGO facility management extensive measures were undertaken to reduce the amount of energy and resources. Moreover, the ERGO Insurance Group oper- ates an environmental management system at the highest European level and in accor- dance with the EU Environmental Audit Directive and with the aim of continually improving environmental performance. We are also making our contribution towards the environment in terms of underwriting. Following the introduction of the Energy Performance of Buildings Directive (EnEV) in 2007 the energy pass for existing buildings has become mandatory since 1 July 2008. In turn, the ERGO Insurance Group reacted by introducing a specially geared pecuniary loss liability insurance for energy advisers.

Other success factors

Since 2007 we have also been offering a comprehensive insurance solution for envi- ronmental damages based on the EU Direc- tive on Environmental Liability. More than 7,000 customers have already taken out this policy with us.

With its commitment towards the environ- ment and open dialogue with those mem- bers of the public who are interested, the ERGO Insurance Group will assume social responsibility in the future, too, by actively facing such important issues, including pro- tecting the environment and climate as well as sustainability.

IT security and processes

Information management plays a central role at ERGO. Accordingly, great importance is attached to confidentiality, availability and integrity of information. In order to protect all electronic data, computers and networks, as well as all information which is not stored in our IT systems, ERGO has put in place effective security measures.

Our inter-company IT security management comprises four levels: security policy, secu- rity directives, security concepts and their technical implementation. Managing infor- mation security lies in the hands of our Chief Information Security Officer and he is sup- ported by an IT Security Management Board which acts as a strategic and controlling committee.

We are continually developing our existing security management system, taking into account international standards as well as the developments pertaining to Solvency II – and we are still looking to be certified in accordance with ISO 27001. We counter possible operational risks with qualified

security measures. In order to maintain the value of the ERGO Group in the long term, the IT Security Management provides sup- port in strategic and operational plans in Germany and internationally, such as the set-up of a security or risk management sys- tem for our foreign subsidiaries.

There is an intensive exchange of informa- tion between ERGO and Munich Re concern- ing questions relating to security issues: in DISK (the German acronym for data protec- tion and information security group) all par- ties responsible meet on a regular basis to discuss project results, risk assessments and their experiences, utilise synergy effects and address ideas for group-wide projects.

To ensure that persons, information, items and assets are protected is of principal importance to ERGO. Our data privacy poli- cy, which regulates the handling of client data, contains binding statements on the protection of data pertaining to personal details. It serves as the basis for our staff when handling personal data and deter- mines the technical and organisational mea- sures which are to be carried out to ensure that personal data is protected. At the same time, it forms the basis for principles, guide- lines, instructions and company agreements for all data privacy topics. The legal basis for processing client data is the contractual relationship and the consent given by clients when taking out insurance cover.

Reservations concerning statements on the future

Predictions about the forthcoming develop- ment of our Company are based primarily on planning figures, forecasts and expecta- tions. Consequently, the following assess- ment of the ERGO Group’s development merely reflects our imperfect assumptions and subjective views. It follows that we can- not accept any responsibility or liability in the event that they are not realised in part or in full.

The assessment and comments on probable company development, including major opportunities and risks, are conducted to the best of our knowledge and belief taking into account findings for prospects in the industry which are available to us at the moment, future economic and political para- meters and trends as well as the major fac- tors of influence they will have. Of course, these prospects, parameters and trends can change in the future without it already being foreseeable at the moment. On the whole, the actual development of the Company and its results can therefore deviate significant- ly from forecasts.

All in all, looking ahead at the next two finan- cial years, we continue to expect a positive trend in ERGO’s business, despite the diffi- cult economic environment. This assess- ment is based on a number of expectations which take into account major opportunities and risks, our economic environment and our strategic alignment. The risks are described in detail in the “Risk Report”, and

General economic trend

Even if there is currently a high level of uncertainty concerning economic forecasts, considerably poorer overall economic con- ditions can be expected for 2009. The effects of the international financial market crisis on the real economy give rise to expec- tations of a recession in industrial countries. Newly industrialising countries will probably show very dampened dynamic force in growth. The fall in global demand is likely to lead to noticeably lower inflation rates. A recession can be expected in the euro zone as well as in Germany. The cause of this development is likely to be a major decline in exports, sluggish investment as well as lower levels of private consumption. This will result in a significant clouding of the para- meters for the German insurance industry in 2009 and 2010. There is a risk of a further deterioration in the general economic situa- tion. Additionally, falling price levels cannot be excluded. Against this background, fur- ther state intervention is conceivable. Capital market trend

In the light of the considerably dampened economic outlook, the climate for higher- risk investments will remain difficult in 2009, particularly in the first half of the year. A precondition for a return to a positive cap- ital market trend is a clear indication of a general economic recovery and a related reduction in volatility.