COMPETITION TRIBUNAL SOUTH AFRICA
Case NO: 10/LM/Jan09
In the matter between:
Old Mutual (South Africa) Ltd Acquiring Firm
And
Medscheme Life Assurance Ltd Target Firm
Panel : N Manoim (Presiding Member); U Bhoola (Tribunal Member) and M
Mokuena (Tribunal Member)
Heard on : 11 March 2009
Decided on : 11 March 2009
Reasons Issued on : 01 April 2009
Reasons for Decision
Approval
[1] On 11 March 2009 the Competition Tribunal issued a Merger Clearance Certificate
unconditionally approving the merger between Old Mutual (South Africa) Ltd and
Medscheme Life Assurance Ltd. The reasons appear below.
Parties
[2] The acquiring firm is Old Mutual (South Africa) Ltd (“OMSA”). OMSA is indirectly
controlled (through wholly owned subsidiaries) by Old Mutual plc (“Old Mutual”).1
1 OMSA directly controls Nedgroup Life Assurance Company Ltd ( “NLACL”);Old Mutual Investment Group SA
(Pty)Ltd (“OMGISA”); Old Mutual Investment Administrators (Pty)Ltd (“OMIA”); OM Portfolio Holdings (South
Africa) Ltd (“OMPH”); Spice Financial Holdings (Pty)Ltd (“SFH”); BoE (Pty)Ltd (“BoE”); Old Mutual Investment
Group Property Investments (Pty)Ltd (“OMIGPI”);Old Mutual Healthcare (Pty)Ltd (“OMHc”);Old Mutual
Investment Services (Pty)Ltd (“OMIS”); Old Mutual Health Insurance Ltd (“OMHI”); Old Mutual Capital Partners
(Pty)Ltd (“OMCP”); Vuselela Investments (Pty)Ltd (“VI”); Metropolis Health Services (“MHS”);Old Mutual
Alternative Risk Transfer Ltd (“OMART”); Old Mutual unit Trust Managers Ltd (“OMUTM”); Old Mutual Fund
Administrators Services (Pty)Ltd (“OMFAS”); Old Mutual FundsNet Nominees (Pty)Ltd (“OMFN”); Visimed
Properties and Administrators (Pty) Ltd (“VPA”); Old Mutual Specialised Finance (Pty)Ltd (“OMSF”); Old Mutual
Capital Holding (Pty)Ltd (“OMCH”); Celestis Broker services (Pty) (“CBS”); Black Broker Holdings (Pty)Ltd
(“BBH”) and Old Mutual Life Holdings (South Africa) Ltd (“OMLH”) which controls Old Mutual Life Assurance
Company (South Africa) Ltd (“OMLACSA”).
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[3] The primary target firm is Medscheme Life Assurance Ltd (“ Medscheme Life”). 2
Medscheme Life is a wholly owned subsidiary of Medscheme Financial Services (Pty) Ltd
(“MFS”).
Transaction
[4] In terms of the structure of the transaction, OMSA is acquiring 100% of the issued
share capital and financial interest in Medscheme Life from MFS. On completion of the
transaction, OMSA will control Medscheme Life.
Rationale for the Transaction
[5] This transaction takes place in the context of two other transactions concluded at the
same time. In the first transaction Lethimvula, the controlling shareholder of Medscheme,
will be acquiring 100% of the ordinary shares and shareholder loans of Old Mutual
Healthcare (Pty) Ltd (“OMHc”) from OMSA. OMHc, like Medscheme, is an administrator of
medical schemes. Old Mutual will still control Oxygen another medical scheme
administrator. However the second transaction between the firms, involves a series of joint
marketing relationships between Lethimvula and OMSA. As these firms are the parent
companies of competing subsidiaries, a joint marketing arrangement might raise competition
concerns. However the merging parties and the Commission were both of the view that
these arrangement were not linked to the merger before us, and as the Commission is still to
consider the OMHc merger, which has been notified, this issue will be given due
consideration then.3
[6] The severability is confirmed by internal documents from OMSA, which treat the
present transaction as a ‘ separate’ and ‘ stand alone’ transaction. By contrast the other two
transactions referred to above are described as “ inter conditional ”.4 We do not need to
consider this issue any further in the present merger.
Parties Activities
[7] OMSA act as an investment holding company in respect of a variety of businesses
with the following core business activities and products: asset management; healthcare;
with the following core business activities and products: asset management; healthcare;
savings plans for specific goals or education funding; the provision of banking and
2 Medscheme Life does not control any firm.
3 See transcript page 3
4 See record 716.
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investment products offerings; general insurance and life assurance. The firms controlled by
OMSA, who are active in the assurance market, include Old Mutual Life Assurance
Company (South Africa) Ltd (“OMLACSA”) Old Mutual Alternative Risk Transfer Ltd
(“OMART”); Nedgroup Life Assurance Company Ltd (“NLACL”) 5; and BoE (Pty) Ltd (“BoE”) 6.
OMLACSA’s principal activity is the transaction of all classes of life assurance and
retirement funding in South African market. OMLACSA is a registered long term insurer who
is currently authorized to provide the following products: Life Policies (including death benefit
policies,pre-retirement savings,endowments,post retirement income and funeral benefits);
assistance policies; disability policies; fund and fund member policies; health policies;
reclassified retrenchment cover and sinking fund policies. OMLACSA operates both in the
individual7 and group life segments 8. OMART is a cell captive insurer. 9 OMART is
authorized to enter into assistance, disability, fund, health, life and sinking fund policies.
[8] Medscheme Life is a registered long term insurer which is currently authorised to
provide the following products: Life Policies (including death benefit policies,pre-retirement
savings,endowments,post retirement income and funeral benefits); assistance policies;
disability policies; fund and fund member policies; health policies; reclassified retrenchment
cover and sinking fund policies. Medscheme operates both in the individual 10 and group life
segments11.
Relevant product Market
[9] According to the Commission there is an overlap in the activities of the merging firms
in respect of the provision of group life policies and individual policies. The Commission
submits that from a policy holder’s point of view group cover and individual cover are not
interchangeable. According to the Commission there is a degree of supply side substitution
interchangeable. According to the Commission there is a degree of supply side substitution
in the long-term insurance sector in that an insurer who is issued with a license to render a
5 NLACL is only active in individual life assurance market and operates predominantly in the credit life market.
6 BoE Life’s product range includes only investment and annuity products, sold on an individual life and sinking
fund basis. 7 For a list of OMLACSA’s individual life business products please see page 49-50 of the record.
8OMLACSA’s also has a range of group life business products. OMLACSA’s employee benefits products and
services include the following group life business products: Retirement funding investment solutions, which
include a range of guaranteed products, annuity portfolios and market linked products; Group Life cover;
Disability cover; Funeral cover and retrenchment cover.
9 A cell captive insurer is an insurance company that sells segments (or cells) of its company to large commercial
companies who wish to self insure. See record page 52.
10 In the individual life business segment Medscheme Life operates primarily in the lower market, selling single
needs and packaged products. Medscheme Life currently actively markets the following three key products line:
cancer which is classified as disability business; funeral and accidental death.
11Medscheme Life group life business products are generally focused on broad group risk, with life and disability
cover, income protection and dread disease. It also has a number of group funeral schemes.
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long term insurance has a choice to either provide group cover or individual cover or both.
The Commission therefore defines the market broadly as the market for the provision of long
term insurance. The Commission defined the geographic market as national as the
insurance brokers and agents are located across the country.
Competition Analysis
[10]
Table 1: Market share for the provision of long-term life insurance
Insurer Estimated market shares
Momentum Group 17.61%
OMLACSA 16.91%
OMART <1%
Nedgroup Life <1%
BOE Life <1%
Liberty Group 10.09%
Sanlam 10.05%
Investec 7.14%
Metropolitan 4.63%
Alternative Chanel 3.29%
Coronation 2.72%
Medscheme Life <1%
Others 25%
Total 100%
Merging firms combined <20%
Pre-merger HHI 1590.56
Post Merger HHI 1628.56
Change in HHI 38
Source: the merging parties
10.1 As can be seen above OMLACSA, OMART, Nedgroup Life and BOE life will have a
combined market share of about 19% and the target firm has less than 1%. According to the
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Commission the merged entity will have a post merger market share of less than 20% in the
provision of long term insurance in South Africa. The Commission’s investigation revealed
that the merged entity will continue to face effective competition from notably the following
firms: Momentum Group with 17.61%;Liberty Group with 10.09%;Sanlam with 10.05%;
Investec with 7.14%;Metropolitan with 4.63%;Alternative Channel with 3.29%;Coronation
with 2.72% and others with 25%. We therefore agree with the Commission’s conclusion that
the proposed transaction is unlikely to raise any competition concerns, as the increase in the
market share is insignificant and the change in HHI is also insignificant. There are no public
interest issues.
Conclusion
[11] Accordingly the transaction is unconditionally approved.
___________________ 01 April 2009
N Manoim Date
Tribunal Member
U Bhoola and M Mokuena concurring
Tribunal Researcher : Jabulani Ngobeni
For the merging parties : Edward Nathan Sonnenburgs
For the Commission : Xolela Nokele (Mergers and Acquisitions)
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