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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: LM152Dec23
In the large merger between:
Capitec Life Limited Primary Acquiring Firm
And
The funeral insurance business underwritten in
the cell structure of Centriq Life Insurance
Company Limited
Primary Target Firm
Panel: A Kessery (Presiding Member)
F Tregenna (Tribunal Member)
L Mncube (Tribunal Member)
Heard on: 14 March 2024
Order issued on: 14 March 2024
Reasons Issued on: 15 April 2024
REASONS FOR DECISION
Approval
[1] On 14 March 2024, the Competition Tribunal (“the Tribunal”) conditionally
approved the large merger in terms of which Capitec Life Ltd (“Capitec Life”) (the
primary acquiring firm) will acquire sole control of the funeral insurance business
underwritten by Centriq Life Insurance Company Ltd (“Centriq Life”) in terms of
a cell captive arrangement1 with Capitec Ins (Pty) Ltd (“Capitec Ins”) (the “Target
1 In terms of the Insurance Act No. 18 of 2017, ‘‘cell captive insurer’’ means an insurer that only conducts
insurance business through cell structures; ‘‘cell structure’’ means an arrangement under which a
person (cell owner)— (a) holds an equity participation in a specific class or type of shares of an insurer,
which equity participation is administered and accounted for separately from other classes or types of
shares; (b) is entitled to a share of the profits and liable for a share of the losses as a result of the equity
participation referred to in paragraph (a), linked to profits or losses generated by the insurance business
referred to in paragraph (c); and (c) places or insures insurance business with the insurer referred to in
paragraph (a), which business is contractually ring-fenced from the other insurance business of that
insurer for as long as the insurer is not in winding-up.
It
competitiontribunal
SOUTH AFR ICA
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Business”), which insurance business risk is reinsured to and administered by
Sanlam Developing Markets Ltd (“SDM”).
Parties to the transaction and their activities
Primary acquiring firm
[2] The primary acquiring firm is Capitec Life. Capitec Life does not directly or
indirectly control any firms. Capitec Life is wholly owned by Capitec Insurance
Holdings (Pty) Ltd (“Capitec Insurance”), which in turn is wholly owned by
Capitec Bank Holdings Ltd (“Capitec Holdings”). Capitec Holdings is not
controlled by any individual shareholder or firm. Capitec Holdings and the firms
controlled by it are referred to as the “Capitec Group”.
[3] Capitec Group operates through its subsidiaries to provide banking and
insurance services. It is responsible for capitalising the Target Business in order
to ensure it can meet its liabilities and statutory solvency requirements. The
Capitec Group is also responsible for marketing, distributing and selling funeral
insurance policies of the Target Business to its banking clients only, which role
also includes attending to the entering into, the variation of, or the renewal of
any funeral insurance policy.
Primary target firm
[4] The primary target firm is the Target Business which is jointly and directly
controlled by Capitec Ins, Capitec Bank Ltd (“Capitec Bank”), Centriq Life and
SDM. The Target Business comprises of a book of funeral insurance policies in
terms of the cell captive agreement with Centriq Life as the underwriter and
which is distributed by Capitec Bank. Centriq Life and SDM are ultimately wholly
owned by Sanlam Ltd (“Sanlam”). Sanlam is not controlled by any firm/s.
Proposed transaction and rationale
Transaction
[5] The proposed transaction relates to the termination of the Co-Operation
Agreement between Capitec Bank, Capitec Ins, Centriq Life and SDM in respect
of the Target Business. After the termination of the Co-Operation Agreement,
Capitec Life will take over the role and functions of SDM (excluding reinsurance)
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until the Target Business is ultimately transferred to Capitec Life in terms of
section 50 of the Insurance Act No. 18 of 2017 (“Insurance Act”). SDM will, after
termination of the Co-Operation Agreement, also cease providing reinsurance
to the Target Business.
[6] The proposed transaction will ultimately result in the Target Business being
solely controlled by Capitec Life, after termination of certain agreements (Co-
Operation, Reinsurance and Operating Agreements), and upon completion of
the transfer of the Target Business to Capitec Life in terms of section 50 of the
Insurance Act.
Rationale
[7] Capitec Group received its insurance licence from the Prudential Authority and
the Financial Sector Conduct Authority on 3 October 2022. It therefore no longer
needs Centriq Life to underwrite the funeral insurance policies of the Target
Business. It now has the licence to underwrite the following classes and sub-
classes of life insurance business: risk, credit life and funeral cover.
Competition assessment
[8] The Competition Commission (“Commission”) considered the activities of the
merging parties and found that the activities of the Target Business are
attributable to Capitec Group given that it already controls the Target Business
pre-merger. Further, Capitec Group is only involved in providing funeral
insurance policies to Capitec Bank’s clients through the Co-operation
Agreement and does not currently underwrite any funeral insurance policies to
the general public which are not Capitec Bank clients. Accordingly, the
Commission is of the view that the proposed transaction is unlikely to change
the structure of any market or lead to the accretion of any market shares.
[9] There is no vertical overlap between the merging parties’ activities as they do
not participate at different levels of the same supply chain.
[10] Having considered the above, we agree that the proposed transaction is unlikely
to result in a substantial prevention or lessening of competition in any relevant
market.
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Public interest assessment
Employment
[11] The merging parties submitted that there will be no retrenchments or job losses
as a result of the proposed transaction.
[12] We are of the view that the proposed transaction is unlikely to raise any
employment concerns post-merger.
Spread of ownership
[13] The Commission noted that the proposed transaction results in a 6.65% dilution
of shareholding by historically disadvantaged persons (“HDP”) because Capitec
Group has 24.7% black shareholding/ownership and Sanlam (the exiting party)
is a level one Broad-Based Black Economic Empowerment (“B-BBEE”)
contributor, and is 46.85% black-owned, with 21.90% ownership by black
women. It nevertheless also agreed with the merging parties that there is no
pre- or post-merger HDP shareholding attributable to the Target Business since
it is an unincorporated business.
[14] The Commission also noted that the Capitec Group currently only provides
funeral insurance policies to Capitec Bank’s clients and not to the general public;
already has pre-existing rights, obligations and joint control of the Target
Business; the parties always contemplated the possibility of a run-down or
transfer of the Target Business to another insurer including the Capital Group if
the arrangement was not renewed; and the Target Business runs predominantly
for the benefit of the Capitec Group. In addition, Capitec Group, a public
company with 24.7% HDP shareholding/ownership will be entitled to 100% of
the profits and/or losses of the Target Business post-merger as opposed to 70%
of the profits and/or losses of the Target Business pre-merger. Further, the HDP
ownership of both parties (i.e., Capitec Group and Sanlam) would remain
unchanged as a result of the proposed transaction.
[15] Following negotiations with the Comm ission, the merging parties subsequently
agreed that Capitec Group will subscribe for shares in and/or
an alternative HO P entity for a purchase consideration equal to an amount of
R and provide funding to
and/or an alternate H O P entity by way of a donation in the form of a grant, in an
amount equal to a m inimum value of (collectively
referred to as the "Investment"). and/or the alternative H O P
entity will ring-fence the Investment solely for the purposes of investing,
developing and supporting HO P owned sma ll-and medium-sized businesses.
Conclusion on public interest
[16] We are not aware of any other public interest concerns arising in this case.
Third party views
[17] No third parties, whether customers or competitors, expressed concerns about
the proposed merger to the Tribunal.
Conclusion
[18] For the reasons set out above, we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition in any relevant market and
does not raise any significant public interest concerns.
[19] We therefore approve the proposed transaction subject to the conditions
attached hereto as Annexure A .
S gned by:An sa Kessery
S gned at:2024-04-IS IS:3 1:26+02 :00
Reason:W tne-ss ng An sa Kes-sery
Adv. Anisa Kessery
15 April 2024
Date
Prof. Liberty Mncube and Prof. Fiona Tregenna concurring.
2 , wh ich Ca pitec Holdings has a shareholding in, wa s incorporated on 12 May 2017 by
the Cap itec Group, and is an Enterprise and Su pplier Developm ent ("ESD ") beneficiary as well as an
authorised financial services provider. It is a venture capital firm, wh ich provides m utually beneficial
long-term equity investm ents into the S m all, Med ium and M icro Enterprise sector as a form of
sustainable and im pactful ESD.
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Tribunal Case Managers: Theodora Michaletos and Baneng Naape
For the Merging Parties: Werner Rysbergen of DLA Piper, Daryl Dingley and
Busisiwe Masanga of Webber Wentzel, and Nicole
Britton of Clyde & Co
For the Commission: Wiri Gumbie, Zanele Hadebe and Nhlakanipho
Mbhense