COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 28/LM/May02
In the large merger between:
Santam Limited
and
Allianz Risk Transfer Limited
Reasons for Decision
________________________________________________________________
APPROVAL
On 29 May 2002 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Santam Limited and Allianz Risk Transfer Limited
in terms of section 16(2)(a). The reasons for the approval of the merger appear
below.
The Parties
1. The acquiring firm is Santam Limited (“Santam”), a short -term insurance
company catering to corporate and personal clients.
2. The target firm is Alliance Risk Transfer Limited is a subsidiary of Allianz
AG in Germany, Allianz SA Ltd and Alliance Insurance Limited. Allianz AG
has 30% while Alliance Insurance has 70% of ART.
The Merger Transaction
3. Santam is acquiring the entire shareholding in and claims against Allianz
Risk. Post -merger, Allianz will be run by Santam as a separate legal entity.
Santam will manage and conduct Allianz’s global accounts that have an
influence in S outh Africa. In other words, Santam will continue to be
Allianz’s representative for all its business in South Africa.
Rationale for the Transaction
4. Santam wants to its product and service offering, specifically its ART
business, in order to be able t o offer these types of products to its clients.
Allianz seeks to exit the South African market as part of its international
strategy. Santam and Allianz have had a long -standing relationship. The
merger provides a means for Santam to acquire a business wi th an
established license and client base.
The relevant product market
5. Both firms operate in the short -term insurance market. Such insurance
contracts provide for the indemnification of the insured policy holder in the
event of a loss, in return for the payment of a premium.
6. Allianz Risk Transfer provides what are known as Alternative Risk Transfer
or “ART” products for large corporates. ART is a specialized form of short
term insurance, a non -conventional, more creative and flexible method of
financing risk. 1It essentially provides customized financing of risk exposure
for the big corporates and industrial clients, relative to their specific risk
requirements and profiles. It is different from traditional short -term
insurance in many respects and may comprise more tradit ional insurance,
but also may include new previously non-insurable risks2.
7. Santam caters to corporate and individual clients, providing traditional
short-term insurance plus a range of tailor -made insurance products,
including those for corporate risk management, niche businesses,
underwriting and ART. In respect of the latter category of insurance, it
however does not provide conduct business as a cell captive insurer.3
8. We accept the contention that the market for ART products is a separate
relevant market to that of traditional short -term insurance and that the
relevant market is that of the provision of ART products, inasmuch as both
parties carry on this activity.
9. The parties and the Commission contended that geographic market is
international since a South African customer can turn to an international
insurance competitor for its ART business. The parties confirmed at the
hearing that in general, insurance business can only be placed with local
hearing that in general, insurance business can only be placed with local
1
It consists of a range of risk -solution models & instruments:
• Self Insurance
• Financial Re-insurance
• Multi-trigger and spread loss covers
• Other hybrids. 2
The Commission states that it differs f rom traditional short-term insurance in other respects too, in
that it includes multi -year policies; includes risk transfer of non -insurance risk and provides for
various hybrids of traditional insurance. It does, however have similarities with short-term insurance
– the essential risk transfer transaction is the same, both regulated under the Short Term Insurance
Act and require a 5-year business plan as to how the business will be run. 3
This is one of many methods of underwriting risk. Briefly, cell cap tive insurers use their client’s
own funds to finance solvency requirements, such as retained earnings, issued capital and share
premium. Other methods include captive insurers, rent-a-captive.
domiciled insurers, under the supervision of t he Financial Services Board
(“FSB”). However, it is fairly common for application to be made with the
FSB to write business offshore where there is limited insurance and
reinsurance capacity in South Africa, provided the application is then
approved by a c ommittee. In view of the impact on competition, the
Tribunal does not find it necessary to decide this point.
Impact on competition
10. According to figures supplied by the parties, Santam has 7.3% of the
domestic ART market and Allianz has 3.2%. Post -merger, Santam will have
a combined market share of 10.5% in the national market, which will make
it the second largest provider of ART insurance, the largest being Guard
Risk, having 50%. Guard Risk is owned by Alexander Forbes. There are in
addition approximately 7 cell captive insurers in the domestic market.
11. It seems the major barrier to entry is the capacity of short -term insurers to
rely on own funds to meet solvency requirements. They can, by means of
being a cell captive insurer, use the client ’s funds to finance this, but there
are additional administrative requirements placed on these types of
insurers. 4
12. The Tribunal is persuaded that there is sufficient countervailing power in
this market to offset any potential price manipulation by th e dominant
players. The parties’ clients, the consumers of ART, are large multinational
corporates, who have the ability to negotiate prices and policy terms with
insurers.
Conclusion
The Tribunal endorses the Commission’s finding that this transaction will not
substantially lessen or prevent competition in any market. The Tribunal therefore
approves the transaction unconditionally. There are no public interest concerns
which would alter this conclusion.
_____________ 6 June 2002
N. Manoim Date
Concurring: D. H. Lewis , U. Bhoola
4
Concurring: D. H. Lewis , U. Bhoola
4
As a cell captive, there are specific registration requirements, for instance, one has to have
specific categories of shares available.