Why is ERGO focusing on the Chinese market, and why specifically in Shandong?
For ERGO, China is a core growth market. Besides growth, this market also offers innovative and digital business models, which we may transfer to other markets in the future. China also has an increasingly open regulatory environment to foreign investors. For all of these reasons, we are motivated to accelerate our investment and strategic development in China.
In 2013, we have established the life insurance joint venture ERGO China Life and now in 2020 have entered the P & C insurance market with our investment in Taishan. Our Chinese partner in both cases is SASAC, a government agency, which is responsible for the strategic planning and supervision of state-owned enterprises in China.
Shandong is a province in eastern China with a large and strong economy and a population of 100 million people. Shandong is the third largest insurance market in China with a premium volume of EUR 35 billion per year and double-digit growth in the past 5 years. The headquarters of both ERGO China Life and Taishan Insurance are based in Shandong. Both companies are also active players in the nationwide market. So our Shandong homebase can fully contribute and complement ERGO’s other strategic initiatives in China.
Can you tell us more about the strategic cooperation between ERGO and Taishan Insurance?
Taishan’s premium volume has already grown strongly in recent years. We have a position in the top 5 P&C companies in China with a foreign investor. We expect this position to further improve as we expect Taishan to continue its annual double digit growth in the future. With motor insurance being the main line of business of the company we expect stronger growth in the non-motor lines in the coming years.
ERGO’s initial share is 24.9%, which has advantages of opening new branches under the current regulatory framework. Both SASAC and ERGO can certainly imagine increasing our share in the future.
We also have an agreement with our Chinese partners about the future strategy of the company as well as the required investments. Both aspects we have elaborated with the company since we started our discussions in 2017.
Also more important than the current share ERGO has invested in the company is the fact that ERGO is mandated to control and lead the management of Taishan in order to excecute the strategy and related investments.
It is key to understand that the transaction is a capital increase. This means that the capital ERGO invests is paid into the capital base of the company and not to another investor, who is selling shares. So the new capital will be available for such strategic investments of Taishan.
How is ERGO adding value into Taishan Insurance through this cooperation?
We will expand and improve the existing business activities of the company in various ways.
Taishan will invest in key functions such as claims and underwriting to develop the company towards best practice standards in the Chinese market.
We will further invest in IT infrastructure and digital technology. These investments will empower Taishan to execute business models, which you may compare with the “hybrid customer” model in Germany. It will also enable the company to establish and scale up partnerships with third party platforms, which play an increasingly important role in attractive market segments like accident & health.
We also plan to continue the geographic expansion of Taishan, which is a rather young company, by further investing in its network of branches.
These investments and the partnership with ERGO will also support Taishan to attract and retain a strong and growing talent base.
Another point is to mobilize the resources of all stakeholders for the benefit of the business development of the company. Taishan can now tap into the expertise of our colleagues of ERGO Global P&C as well as MunichRe in areas like underwriting. ERGO can also provide opportunities to collaborate with other ERGO operations in China, such as our life joint venture or the partnership with Great Wall Motor. But we will also further mobilize the Chinese shareholders so that Taishan will become a strong partner for commercial lines and B2B business for its customer base in its home province Shandong.
Last but not the least, we will provide international expertise and innovation. For example Taishan can benefit from marketing innovative product concepts in the area of cyber or mobility. The partnership with ERGO also opens the door for participating in international insurance programmes, as many customers of Taishan and Chinese companies in general are exploring international expansion strategies.
Interview: Eva Fung