Munich Re has announced a plan to invest €1bn ($1.12bn) in its primary insurer Ergo Group by 2020.
The German reinsurer expects the insurance business to contribute €500m annual profits by 2021 as part of the long term plan.
By investing significantly “above all in IT”, the plan aims to begin digitalising the Ergo business, with €432m allocated to its digital plans.
The measures will also lead to the “unavoidable” loss of around 1,800 jobs in Germany, the company said.
Ergo will launch an online only insurer in 2017, the company said, starting with motor insurance products.
Munich Re's plan envisages consolidating sales organisations and paring down administration costs, aiming at savings of around €540m gross (€280m net) by 2020.
“The strategy programme of Ergo’s CEO Markus Riess will ensure that Ergo can once again become a strong source of earnings for Munich Re,” said Nikolaus von Bomhard, Munich Re’s CEO and chairman of Ergo’s board.
Riess, Ergo’s CEO and Munich Re board member, added: “We are leveraging the opportunities of digitalisation to ensure a successful future for Ergo.”
Ergo is expected to make a loss for this year, according to Munich Re, with its results “slightly negative” weighed down by €300m of the new investment attributed to 2016.
“By consolidating sales organisations and additional earnings potential will increasingly offset the investments made. For 2017, Ergo expects its result to return to a distinctly positive level,” said the company.
Ergo Digital Ventures was set up in February 2016, “to drive the digital transformation at Ergo forward”.
The company’s Ergo Direkt subsidiary, the pure digital player it plans, and its Mobility Solutions suite of products, are expected to operate under its ambit.
“People use the internet for all kinds of everyday business, from buying a book to filing their tax return. We do not want to leave this sales channel to others. That is why we are making sure today that our inner clock has a digital mechanism in future,” said Riess.
“With Ergo Direkt we already have a credible footprint in this field,” he added.