Pannónia Reinsurance Institute

Pannonia Hungarian Reinsurance Institute is Hungary's first reinsurance company. It was founded by the shareholders of the First Hungarian General Insurance Company in 1862, primarily to reinsure the fire and ice insurance portfolio of EMÁBIT. It soon extended its operations to reinsure other Hungarian insurers and was Hungary's most important reinsurer for nine decades until its nationalisation in 1948. For a short period in the 1940s, as a consequence of the consolidation of the EMÁBIT group, it also provided direct accident insurance.

The Pannonia Magyar Viszntbiztosító Institute - Hungary's first reinsurance company - was founded in 1862 by the shareholders of the First Hungarian General Insurance Company, primarily to reinsure the fire and ice insurance portfolio of EMÁBIT. Of course, insurance companies operating in Hungary had also sold and accepted reinsurance risks before that time. This method of risk portability had been spreading in Europe since the 1820s and gradually supplanted the earlier solution of co-insurance. Both methods were used to share risk between two or more insurers. The main difference between them is that, whereas in coinsurance, several insurers jointly assume a risk and are contractually bound to the client, in reinsurance, only one of them, the so-called direct insurer, contracts with the client and assumes the entire indemnity. The direct insurer, on the other hand, passes on part of the risk it assumes, either on a contract-by-contract basis or in respect of its entire portfolio, to another insurer. The latter company is called the reinsurer. Until the 1850s, it was the exclusive practice everywhere for insurers to conduct both direct and reinsurance business. They ceded part of their direct business to reinsurance, while at the same time accepting reinsurance business from others. In the 1850s, in Germany, the first companies were set up which were explicitly active only in reinsurance. The Pannonia Reinsurance Company was the first in this field in Hungary, and indeed in the entire Habsburg Monarchy.

In 1862, the leadership of EMÁBIT justified the foundation of Pannonia with the same argument that had been used five years earlier to justify its own. It was in the Hungarian national economic interest that reinsurance profits should not go into the pockets of foreigners. The company was not set up primarily to operate the then small volume of reinsurance business, but to retain part of the reinsurance business ceded by EMÁBIT. This would not have made much sense if Pannonia had been founded and owned by EMÁBIT, since it would then have been easier not to reinsure this business at all. However, Pannonia was not owned by EMÁBIT, but by EMÁBIT shareholders. The two companies were founded by the same shareholders, had almost the same board of directors, were managed by an official taken over from EMÁBIT, had their clerical staff from EMÁBIT, had their offices in the same headquarters as EMÁBIT, but their shares were not on EMÁBIT's books. Its profits or losses were enjoyed or suffered by the owners independently of EMÁBIT. In effect, the joint shareholders of the two companies managed the different layers of risk of the same insurance portfolio - known in insurance jargon as the risk layer - in different ways. They kept the normal risk for themselves through EMÁBIT, insured the next, riskier layer themselves through Pannonia and ceded only the peak risks to foreign reinsurers. The success of the model depended on good risk selection and pricing by EMÁBIT, and this has worked well for most of the two companies' joint history. Pannonia, like the parent company, was profitable and paid dividends to shareholders.

We do not know how much of Pannonia's business was taken over from other insurers, but we do know that three years later, in 1865, EMÁBIT set up Securitas Viskversicherungs Gesellschaft (Securitas Reinsurance Company), with its headquarters in Vienna, for this purpose. Although in organisational terms Pannonia was effectively a reinsurance department of EMÁBIT and Securitas a foreign general agency, both companies had their own governing bodies, as required by law.

Pannonia had its own president and board of directors until the 1875 Commercial Act, after which it was governed by a three-member board of directors delegated by EMÁBIT and controlled by a supervisory board, also consisting of three members. The company was chaired by Count Menyhért Lónyay until his appointment as Prime Minister in 1871, followed by Count György Károlyi.

Among the first officers of the company was the poet Károly Ács between 1862 and 1875, who later recalled that Pannonia provided the secure basis for his livelihood. In the 1880s, the company's supervisory board included, among others, Falk Miksa, who had previously been a journalist in Vienna and had been of great help in promoting both Pannonia and EMÁBIT.

Between the two world wars, the relationship between Pannonia and EMÁBIT became even closer. Most of its revenues could be derived from the companies of the EMÁBIT group, and the phenomenon of group-wide profit and loss management was introduced. Almost every year the reinsurer closed its financial year with a zero result, the group wanted to show the result in EMÁBIT.

Until 1943, Pannonia operated exclusively as a reinsurer. In 1938, according to the Insurance Supervisory Authority under the Ministry of Finance, it reinsured all nine lines of insurance which EMÁBIT had been operating as a direct insurer. It reinsured fire and breakdown, hail, burglary, warranty, cargo, motor, glass, life and accident insurance portfolios. In 1943, as part of the consolidation of the group, Pannonia merged with National Accident Insurance Company, which had been set up in 1893 jointly by Magyar-Francia Versicherung and EMÁBIT, and from that time onwards the reinsurer was also supposed to be a direct insurer, although its possibilities were very limited due to the two years of war and the subsequent hyperinflation and nationalisation.

Sources

Hungarian National Archives (MNL), Economic Archives (Z)

Z 1405 Insurance fund fragment (1895-1951), bundle 4. 12. Final accounts of the Hungarian Reinsurance Institute of Pannonia (1877-1879)

Hungarian Kir. Ministry of Finance. 1941: Report on the state of Hungarian insurance based on the 1938 business results of private insurance companies operating in Hungary. Budapest

Sándor Mihók, then Jakab Ambruster, G. Sándor Nagy, later Mihály Della Vedella (ed.) 1873-1944/45: Hungarian Compass. Financial Yearbook. Budapest.

László Krizsán 1999: The ballad of freedom. The life story of Károly Ács. Pest County Archives Notebooks 29. Budapest.

Csury Jenő Jr. - Marosi Imre 1931: The history of Hungarian insurance. Budapest.

EMÁBIT (Ormody Vilmos) 1908: Jubilee album of the First Hungarian General Insurance Company: 1857-1907. Budapest.

János Pompéry 1883: To mark the quarter-century anniversary of the First Hungarian General Insurance Company. Budapest

Gábor Tamás 2019a: Managerial dominance? Organizational evolution and career paths of officials in an insurance company. Kövér György - Pogány Ágnes - Weisz Boglárka (eds.): Domain - Company. Hungarian Economic History Yearbook 2019. (3.) 287-324.

Gábor Tamás 2019b: The development of the insurance market in Hungary from the mid-19th century to the First World War. Insurance and risk. (6.) 1. 14-49.

Gábor Tamás 2019c: From war to crisis, from crisis to war. Insurance and risk. (6.) 2. 52-95.

Date of foundation: 1862

Date of cessation: 1948

Founders: the main shareholders of the First Hungarian General Insurance Company (EMÁBIT)

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Author: by Gábor Tamás