A German insurance firm has admitted rewarding its 100 best salesmen with a prostitute-filled "sex party" in Budapest's most famous thermal baths.

Hamburg-Mannheimer International (HMI), now part of the huge Munich Re insurance conglomerate, rented out the historic Gellert Baths in the Hungarian capital and turned it into an "open-air brothel", where it let staff run riot.

At least 20 prostitutes were hired by HMI top brass for the so-called "incentive trip". According to those present, the women were colour-coded to indicate which men were allowed to have sex with them. Those wearing white ribbons were reserved for "the very best salespeople and executives", said one HMI employee.

After an investigation printed in the German newspaper Handelsblatt, Munich Re has admitted that the party – described in one German magazine as "Bunga-Bunga in Budapest" – did occur.

"It is true that in June 2007 an incentive trip took place in Budapest. Our research has discovered that during an evening event during this trip, around 20 prostitutes were present," said a spokesman for Ergo, a life insurance arm of Munich Re that took over HMI some time after the party took place.

The Handelsblatt newspaper has gathered sworn statements from a number of HMI employees who attended the party.

"At the entrance, I and other participants were searched, like at security controls at an airport," said one witness. The HMI boss told everyone it was "strictly forbidden" to take photos or video the event, he added.

According to a signed affidavit from another employee: "The ladies came up to us and showed us what they had. It was clear to everyone there that they were hookers."

"The women wore red and yellow ribbons," one guest told Handelsblatt. "Some were there just as hostesses; the others made clear with the colour of their ribbon that they weren't just there to chat."

Then there were women wearing white ribbons. They, allegedly, were reserved for the "best of the best" in the company.

Another guest said that beds had been set up around the baths where the salesmen could "do what they wanted". The women, he claimed, were then given an ink stamp on their forearms to show how popular they had been: some of the women ended up with more than a dozen stamps, it is alleged.

Astonishingly, the debauched trip was written up in the company newsletter, Profil, back in 2007. "There were things you couldn't believe," said the Profil report, according to Handelsblatt. "Or there were things that were so freaky, so unbelievable and indescribable that they shouldn't be allowed."

The incident was a "clear violation" of company policy, said Alexander Becker, a spokesman for the Ergo Versicherungsgruppe subsidiary. Those responsible for organising the event are no longer employed at Ergo, he said.

Munich Re, the world's biggest reinsurer, fully owns Düsseldorf-based Ergo, Germany's second-biggest primary insurer after Allianz SE. The Budapest party was hosted by an Ergo unit, then known as Hamburg-Mannheimer Versicherungs-AG.