COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:38/LM/MAY11
In the matter between:
OLD MUTUAL LIFE ASSURANCE Acquiring Firm
COMPANY (SA) LTD
And
MOMENTUM GROUP LTD Target Firm
Panel : Norman Manoim (Presiding Member)
Andiswa Ndoni (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on : 9 November 2011
Order issued on : 09 November 2011
Reasons issued on : 21 November 2011
Reasons for Decision
Approval
1] On 9 October 2011, the Competition Tribunal (“Tribunal”) approved the
large merger between Old Mutual Life Assurance Company (SA) Ltd and
Momentum Group Ltd. We explain below our reasons for this conclusion.
The Parties to the transaction
2] The primary acquiring firm is Old Mutual Life Assurance Company (SA)
Ltd (“OMLACSA”), a public company incorporated in accordance with the
laws of the Republic of South Africa. Its ultimate South African
1
shareholder is Old Mutual (South Africa) Limited which is controlled by
Old Mutual PLC. OMLACSA controls in excess of twenty subsidiaries.
3] The primary target firm is Momentum Group Ltd (“Momentum”), in
respect of certain Transfer Policies and Transfer Assets. Momentum is a
wholly owned subsidiary of MMI Holdings Limited and ultimately
FirstRand Limited. Momentum controls a number of subsidiaries.
4] In April 2009, the parties concluded a transfer agreement in terms of
section 37(2)1 of the Long-Term Insurance Act 52 of 1998 (“transfer
agreement”). The transfer agreement involved the transfer of Policies and
Assets from Momentum to OMLACSA. These Policies comprised of
rights and duties emanating from certain linked policies issued by
Momentum to their shareholders and include the policies of institutional
customers such as Nestle Provident Fund, Eskom Pension Fund and
MacSteel Group Pension Plan, amongst others. These customers gave
consent to the transfer in question. The Assets mentioned represent the
underlying assets associated with these policies and are purely of an
investment nature. They are held by Momentum in order to meet its
liabilities towards the policyholders. These assets include amongst others
certain retail properties.
The Rationale
5] This transfer was triggered by the acquisition of Futuregrowth (which was
initially solely controlled by Momentum, until WipCapital (Pty) Ltd
acquired a 70% interest in it) by Old Mutual in 2008. After the acquisition,
Momentum was no longer comfortable with the arrangement it had with
Futuregrowth because of its close ties with the Old Mutual Group, one of
Momentum’s significant competitors. Various ways in which termination
could take place were considered and it was decided that a transfer in
terms of section 37 (2) of the Long Term Insurance Act was the most
1 It provides that “ Any arrangement entered into between two or more insurers whereby a liability of
any long-term insurer towards policyholders is to be substituted for a liability of any other insurer
towards such policyholders (whether or not the liability of the long-term insurer is expressed in or
created by existing policies or by new policies, or the terms of such new policies are the same as or
different from the terms of the original policies), shall be deemed for the purposes of this section to be
a scheme for the transfer of the insurance business concerned, unless the Registrar is satisfied that the
said policyholders have been or will be made aware of the nature of such substitution and have
signified or will signify their consent thereto in writing”.
2
suitable, as such transfer took the interests of the policyholders into
account. Prior to this acquisition, Futuregrowth managed the transfer
assets linked to policies that were sold and issued by Momentum to a
diverse group of policyholders (“linked policies”).2
The parties’ activities
6] The acquiring group offers a diverse range of financial products and
services. OMLACSA is a registered long term insurance provider
currently authorised to provide amongst others, life policies, assistance
policies, disability policies, and health policies. It operates in both
individual and group life segments of the market.
7] Momentum is involved in life insurance, investment and multi-
management activities within the FirstRand group as well as the provision
of medical aid scheme administration services and managed care
services.
The relevant market and the impact on competition
8] The Commission found that there is a horizontal overlap in the long-term
insurance, specifically the market for linked policy 3 investment products
offered to institutional clients.
9] According to the Commission, long term insurance can be subdivided
into individual and group (institutional), risk and investment, as well as
linked and non-linked policies. The two subcategories, risk and
investment, are offered to both institutional and individual customers.
According to the Commission, when an individual takes a risk or
investment policy with a long term insurer, the contract is directly
between that particular individual and the long term insurer and
institutional customers take out risk and investment policies on behalf of
2 The Long Term Insurance Act defines a linked policy as “ a long term policy of which the amount of
the policy benefits is not guaranteed by the long term insurer and is to be determined solely by
reference to the value of particular assets or categories of assets which are specified.”
reference to the value of particular assets or categories of assets which are specified.”
3 The Long Term Insurance Act defines a linked policy as “a long term policy of which the amount of
the policy benefits is not guaranteed by the long term insurer and is to be determined solely by
reference to the value of particular assets or categories of assets which are specified in the policy and
are actually held by or on behalf of the insurer specifically for purposes of the policy.” See pg 13 of
Commission’s record.
3
their members. The Commission submitted that in non-linked policies, the
insured party is often guaranteed to receive a pre-determined amount
whereas in linked policies, the benefit is dependent on the value of the
assets linked to the policies.
10]The Commission further submitted that long term insurers administer
individual products differently from institutional products and that
although there is some degree of supply side substitutability, there is
limited demand side substitutability. Further that there is also limited
demand side substitutability between risk and investment products as
well as linked and non-lined policies. However, both the Commission and
the merging parties did not make a definitive conclusion on the broad
relevant product market, this being due to the fact that from the Tribunal’s
previous decisions, there has been a tendency to approach the issue of
the product market on a case by case basis. 4 Nevertheless, the
Commission assessed the transaction based on the narrow market for
long term insurance linked policies.
11] The Commission also found that the relevant geographic market is
national in scope.
12] The Commission submitted that Long Term Insurers are required to be
registered in terms of the Long Term Insurance Act 52 of 1998 and
certain requirements have to be followed including what is termed capital
adequacy requirement (“CAR”) which currently is R10, 000, 000. The
Commission also found that barriers to entry in the linked policies space
are relatively low as compared to the broad long term insurance market.
However, although barriers to entry appear to be relatively high in the
broad long term insurance market and relatively lower in the linked
policies, the Commission submitted that such barriers are not
insurmountable.
13] The Commission submitted that its investigation revealed that clients are
13] The Commission submitted that its investigation revealed that clients are
able to switch between competitors given that long term insurers offer the
same broad classes of products subject to notice periods and policy
provisions and that depending on the type of linked policy, a termination
charge may be levied by the long term insurers. However, the
4 See pg 13-14 of the Commission’s record.
4
Commission submitted that the merging parties indicated that the policies
involved in the present transaction are not subject to termination charges.
This, the Commission submitted, is an indication of the presence of
countervailing power in the linked policy space.
14] In relation to theories of harm that may result as a result of the merger,
the Commission submitted that given the low share accretion, the high
degree of countervailing power, barriers to entry which are not
insurmountable and the number of rivals in the market, it is unlikely that
the transaction will give rise to unilateral effects. Further that coordinated
effects are unlikely to arise as the market has significant number of
players with some degree of product differentiation and the transfer of the
linked policies also removes a point of possible interaction between Old
Mutual and Momentum. Therefore it is unlikely that the transaction will
result in an increase in the likelihood for coordination.
15] Additionally, the Commission also found that there is another overlap in
respect to convenience/neighbourhood shopping centre as both the Old
Mutual Group and Momentum, through its wholly owned subsidiary
Community Property Holdings Limited (“CPH”) control shopping centres
in Mitchell’s Plain, in Cape Town. However, the Commission found that
with a post merger market share of 21% and a share accretion of roughly
3%, the transaction is unlikely to result in substantial prevention or
lessening of competition in this market.
16] Accordingly, the Commission found that the proposed transfer of specific
linked policies from Momentum to Old Mutual does not enhance Old
Mutual’s market power in a manner likely to prevent or lessen
competition and that there are significant competitive constraints in the
market to limit the ability of the merged entity to exercise market power
post merger. As such, the Commission concluded that the transaction is
post merger. As such, the Commission concluded that the transaction is
unlikely to result in the substantial prevention or lessening of competition
in the relevant market.
CONCLUSION
17] The parties submitted that the proposed transaction will not result in
employment losses. The proposed transaction does not raise any other
5
public interest issues.
18] We agree with the Commission’s conclusion above and find that the
merger is unlikely to lead to any substantial prevention or lessening of
competition in the relevant market. Accordingly, we approve the above
merger unconditionally.
____________________ 21 November 2011
ANDREAS WESSELS DATE
Medi Mokuena and Andiswa Ndoni
Tribunal Researcher: Tebogo Hlafane
For the merging parties: Cliffe Dekker Hofmeyr
For the Commission: Bongani Ngcobo
6