A literature review of the technology of information systems is presented with an analyzed contribution and impact on the business world. At the end we study the importance and contribution of information systems to the new company.
Introduction
- The Global Perspective of Mergers & Acquisitions
- The purpose of the study
- Research methodology
- Chapters of the Dissertation
The fifth chapter presents a case study of the creation of Zavarovalnica ERGO, from the merger of Zavarovalnica ERGO-Premoženjska and accident insurance, ERGO-Life and Agricultural Insurance (ATE Zavarovalnica). In addition, we want to prove that the new company's information systems have a significant impact on the company's performance.
Literature Review on Mergers & Acquisitions, Insurance and Information Systems
Merger and Acquisition
- The Concept of Merger and Acquisition
- Motives of Mergers and Acquisitions
The management of the acquired company does not own the majority of the company's shares. The creation of a new entity through a merger increases the financial possibilities of the new company to develop on the market.
Introduction to Private Insurance
It is essential that the insured informs the insurance company of all important issues. Compensation is paid on the basis of the signed contract and is subject to the relevant laws of the local countries.
Information Systems
- Introduction to Information Systems
- Information System Types
- Information systems and their success
- Information Systems in the Insurance Sector
We can picture an IS as a triangle with each of the preceding entities at the three vertices. The main purpose of these systems is to manage the company's operational level. Office automation systems aim to increase managers' abilities to manage the entire flow of information in the company.
Their goal is to improve organizational efficiency by providing the necessary tools that help companies recognize opportunities in the market. Today, the successful use of information systems gives companies in the modern financial market a comparative advantage to compete in the market. The development of information technologies is one of the strategic factors of investment activities (Ustinov AE, Ustinova L N, Academy of Strategic Management Journal).
Conclusions - What we have learned
In the following chart we show the number of insurance companies in Greece from 2007 to 2016, based on the Association of Insurance Companies of Greece (eaee.gr). Mergers and acquisitions have been the dominant trend in Greece's insurance sector in an attempt by companies to survive in the market. Also in Europe we can observe a decrease in the number of insurance companies, with most following the path of mergers and acquisitions.
No doubt the future of insurance companies will only be prosperous with acquisitions and mergers, which already seem to be in a quagmire. In the following chapters we study the case of ERGO Insurance in Greece that was created after the merger and acquisition of four large insurance companies in 2016, proving the theory presented in this chapter.
Research Methodology of the study
Analysis of the most frequent research methods
The main role of the researcher is to review all collected research results to get a clear understanding of the topic. The sampling of the research and the representativeness of the sample is very important to have a successful research (Wikipedia study, 2018). In observational analysis, the researcher should observe the behavior of a selected target group in order to obtain useful information about the participants' behavior in a situation.
This method requires the researcher to become an effective observer in order to identify the strengths and weaknesses of the behavior of a target group. The researcher must be a good analyst and an effective observer in order to be able to evaluate the performance of the participants. A case study is an attempt by the researcher to conduct an investigation in order to evaluate the entire subject and derive useful information from his research.
The purpose of this study and the selected analysis
40 In the case study analysis that we have chosen to approach our question in this dissertation, the researcher analyzes a situation or phenomenon in depth. Cope (2015) describes case study analysis as a flexible but promising methodology used primarily in social science research. A case study analysis can gather a lot of details for a particular subject as opposed to other methods.
Case studies help researchers conduct complex experiments to generate ideas that can be used to further develop society. This reality often leads to distorted assumptions and can affect the final results of the research. We collected the data mainly from the balance sheets of the merged companies (Ergo Insurance - Ergo Life - ATE Insurance) with the aim of qualitative analysis of financial data for each of the mentioned companies separately.
Advantages and Limitations of the case study analysis
Case Study – ERGO INSURANCE GROUP
- The Profile of ERGO Group
- The merging companies of the group
- ERGO Property and Casualty
- ERGO Life
- ATE Insurance
- Services provided by ERGO Insurance
The main activities of the group are focused on private clients, pension schemes and medium-sized companies. Ergo has a significant part of the Greek insurance market, offering a wide range of insurance services covering the needs of citizens. All of the company's insurance programs are available through Piraeus Bank, which takes advantage of Piraeus' extensive banking network.
At the same time, we must note that the Greek public sector is unable to operate successfully within a capitalist system. The case of ATE proved the inability of the Greek public sector to exploit its assets. In the next chapter, we will examine the financial details of the acquisition to determine whether this acquisition was beneficial for ERGO's shareholders and society.
Case Study Analysis and Critical Discussion
Financial Analysis and Information Systems of ERGO-Property and Casualty
We would like to provide a general picture of the company's economic situation in 2016, as well as the strengths and weaknesses of ERGO-Property and Casualty before the merger. The improvement in the company's financial situation in the above-mentioned years mainly resulted from the lower reinsurance costs that existed in 2016, as a result of the fact that market economic conditions were more flexible than the previous year. Most importantly, the company managed to increase its production despite the difficult conditions in the country, operating in a competitive environment due to the intense contraction of the insurance market in Greece.
The company's technological infrastructure was assessed as satisfactory due to continuous investments in information systems. Most of the company's economic activities were carried out by the online platform. We promoted and sold all the company's insurance products through the online interactive system of the ERGO portal.
Financial Analysis and Information Systems of ERGO Life
Net accrued premiums 0.9 million euros 0.6 million euros Compensation costs 0.9 million euros 0.4 million euros Operating expenses 0.5 million euros 0.6 million euros Underwriting profit (-0.6) million euros (-0.4) million euros Unfortunately the compensation costs and operating expenses of the company have increased and as a result the underwriting profit formed in minus 0.6 million euros in the year 2016. This reduction was not particularly unexpected since the previous year the underwriting profit was already negative in 0.4 million euros.
The company suffered a loss, compared to the previous year 2015, when the company had a neutral economic situation. The ERGO Group in Germany, taking into account the financial data of its subsidiary and recognizing its weaknesses, has decided to merge the company with the other two companies of the group in Greece. The aim of the company's merger with ERGO Property and ATE Insurance was to create a new company that could capture a large share of the market.
Financial Analysis and Information Systems of ATE Insurance
In the table below, we present some basic financial data of the insurance company ATE in 2016, in order to be able to present the company in more detail and its strengths and weaknesses, which led to its merger. The company's technological infrastructure cannot be described as one of the most modern on the market. However, in recent years the company has invested heavily in the development of its information systems in order to digitize its operations.
Many times the investment in information systems is not associated with optimized financial performance in the short term. In this decade, the competing companies in ATE had invested significant funds in the development of their information systems. During the period, the company has made a significant effort to digitize and base the sale of its products through information systems.
Financial Analysis of ERGO Insurance Group before and after merging
The operating and administrative expenses of the new insurance company created by the merger also increased by 2.1% or 5.9 million euros, reaching the value of 84.1 million euros. The underwriting profit before the merger of the companies was EUR 26.0 million for ERGO Property, minus EUR 0.6 million for ERGO Life and minus EUR 31.2 million for ATE Insurance, thus giving a negative result for 2016 before the merger. The new company's human resources were reduced as expected due to the merger of the companies to reduce administrative costs.
The majority of employees were transferred to the new company, who continue to work in the same or similar industry after the appropriate education. The profit in the amount of 10.7 million euros does not prove the success of the merger, since last year, 2016, its profit after deduction of possible taxes exceeded 30 million euros. The result of this downward trend was a sharp decrease in the investment result from 48.3 to minus 5.1 million euros in 2017, which mainly stems from the weakening of the value of its investment properties of the ERGO insurance company.
The impact of information systems in ERGO Insurance after the merging
It is important to note the importance of information systems in the significant reduction of risk for insurance companies and policyholders. The company recognizes the influence of information systems in business life and wants the new company after the merger to meet the increased expectations of customers. We will continue below with the impact that information systems have had on the company's profitability after merger.
Εrgo Life had a turnover of 1.6 million euros in gross registered premiums, of which 69% came through information systems. The possession of improved information systems has enabled the transfer of all the company's economic activities through its digital systems. As we mentioned earlier, digital sales of ATE insurance products through information systems amounted to 61% of total sales.
Conclusions
We examined the case study of Ergo, one of the most recent and large mergers in the Greek insurance industry, and the contribution of information systems in the new company. The successful merger of the company and the effects of information systems in the digital transformation of the company will lead other companies in the industry in future mergers. After the merger, the company showed profitability, which was limited in 2016 and 2017 due to the coverage of damages to the companies.
In addition, the company's information systems were outdated, and large investments were needed in the company's technological infrastructure. In addition, Ergo Life and ATE Forsikring had information systems that could not be integrated into the company's core. Foreign direct investment in the light of the recent crisis, Global Business and Economics Review, Vol.