Munich Re wants to return its loss-making Ergo primary insurance unit to profitability under a €1 billion ($1.54 billion) restructuring plan that will see about 1800 jobs in Germany axed.

Ergo will launch a purely digital insurance company with its own brand next year, and the first product will be a motor insurance policy.

About €432 million ($666.72 million) will be earmarked for digitalisation and upgrading Ergo’s IT infrastructure.

“We will be orienting ourselves very systematically to customer needs,” Ergo CEO Markus Riess said. “To do that we must become leaner, more efficient and digital.”

The turnaround plan aims to reduce €280 million ($431.42 million) from Ergo’s net cost base by 2020 from consolidating the sales organisations and cutting administration outlays, which will lead to the expected job losses.

Munich Re expects the turnaround plan to return Ergo to a “distinctly positively level” next year and contribute more than €500 million ($770.23 million) in annual net profits from 2021 at the latest on a sustainable basis.

The turnaround plan was first flagged last month when Munich Re announced its first-quarter results with overall net profit down 44.8% to €436 million ($671.64 million), partly thanks to Ergo.

The under-performing unit has been a drag on Munich Re’s earnings, losing €25 million ($38.51 million) in the March quarter and €200 million ($308.08 million) last year.

Munich Re expects a net profit of €2.3 billion ($3.54 billion) this year, which takes into account the one-off financial year expense impact of €300 million ($462.11 million) to restructure Ergo.