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Business

Gerling in Cost-Cutting Drive

A series of rationalization measures, including 1,250 job cuts, is to help the ailing insurance group achieve the turnaround, but the impact of the measures on its major industrial clients in Germany could be minimal.

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Gerling's new headquarters in Cologne, Germany

Ailing insurance group Gerling plans to get in shape for a new major shareholder with a series of rationalization measures. The group announced on Tuesday that it had reached agreement with its works' council to cut 1,250 jobs over the next two years and that it plans to make additional savings totaling 70 million euro.

Whether the measures will be enough to meet the ambitious targets set by the company's two shareholders – Rolf Gerling with a stake of 65.5% and Deutsche Bank with 34.5% – remains to be seen. They expect Gerling to reach an after-tax return on capital of 15% and a loss ratio of 103% of net earnings at its four core divisions – industrial, corporate, private, and credit and re-insurance.

The group's industrial insurance and reinsurance units have recently been the furthest from these targets, posting a loss ratio of 122% and 112% respectively in 2000. As a result, they are likely to face the biggest cut-backs.

With a record loss of 500 million euro, the reinsurance unit is responsible for Gerling's current crisis. But works' council and management were said to remain at odds over what was at the root of the unit's problem.

A separate restructuring concept is to be drawn up for Gerling's reinsurance unit in the United States, which is heavily burdened by claims relating to the terrorist attacks of last year. But a time frame has not yet been set.

What has been decided is the sale of Gerling's subsidiary in South Africa and the closure of representations in Mexico, Korea and Taiwan.

Under the measures agreed, Gerling's industrial insurance division will in future focus on European customers while its overseas activities are to be sold.

Alongside Allianz AG, Gerling is Germany's leading industrial insurer. Its corporate clients had become concerned that as a result of the group's restructuring program or of a possible foreign takeover, Gerling might decide to pull out of industrial insurance altogether.

In a first response to Tuesday's announcement, industry representatives showed themselves relieved that the measures agreed will have a minimum impact on Gerling's major domestic industrial clients.

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