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[2014] ZACT 88
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One Mutual Investment (Pty) Ltd v ABSA Insurance Risk Management Services Ltd (018390) [2014] ZACT 88; [2014] 1 CPLR 126 (CT) (7 March 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 018390
In the matter
between:
One
Mutual Investment (Pty)
Ltd
.........................................................................
Primary
Acquiring Firm
And
ABSA
Insurance Risk Management Services
Ltd
....................................................
Primary
Target Firm
Panel: Takalani
Madima (Presiding Member)
Medi Mokuena
(Tribunal Member)
Anton Roskam
(Tribunal Member)
Heard on: 19
February 2014
Order Issued: 19
February 2014
Reasons Issued on: 7
March 2014
Reasons for
Decision- Non Confidential
Introduction
[1] On 19 February
2014 the Tribunal approved the acquisition by One Mutual Investments
(Pty) Ltd of the entire issued share capital
of ABSA Insurance Risk
Management Services Ltd from ABSA Insurance Company Ltd. The reasons
for the decision are set out below.
[2]
The primary acquiring firm is One Mutual Investments (Pty) Ltd
(“OMI”), a firm incorporated in accordance with the
laws
of South Africa. OMI is an acquisition vehicle and does not own or
control any firms. It is jointly controlled by One Group
Short Term
Holdings (Pty) Ltd (“OGST”) holding
and
Mutual & Federal Insurance Company Ltd (“Mutual
& Federal”) holding of the share capital. OMI is
owned
by One Financial Services Holdings (Pty) Ltd (“OFSH”) and
Mutual and Federal is owned by Old Mutual South Africa.
[3] The primary
target firm is ABSA Insurance Risk Management Services Ltd (“AIRMS”),
a firm incorporated in accordance
with the laws of South Africa.
AIRMS is in turn a wholly owned subsidiary of ABSA Insurance Company
Ltd and its ultimate holding
company is Barclays Africa Group Ltd.
The transaction
[4] In terms of the
transaction OMI will acquire 100% of the shares in AIRMS from ABSA
Insurance Company. OGST and Mutual and Federal
will jointly control
OMI post the transaction.
Rationale for the
transaction
[5] OFSH
[confidential information]
[7] According to
AIRMS it is |
[8] Mutual and
Federal provides insurance services to private, commercial and
corporate clients in South Africa. It owns a short-term
insurance
license and utilizes underwriting managers and intermediaries to
provide insurance services.
[9]
OFSH provides underwriting management services and offers a wide
range of shortterm insurance products for a variety of needs.
It
currently acts as agent for AIRMS, a short-term insurance cell
captive provider. A cell captive is an insurance vehicle that
allows
the short-term license holder to use a third party to act on its
behalf in the market and it therefore shares in the profit
and losses
of whatever the third party would gain in the market. In this case
the target firm AIRMS is the holder of a shortterm
insurance license
but does not provide any short-term insurance products itself. It
relies on OFSH which conducts its operations
through a third-party
cell captive called OneCom.
1
[10] AIRMS is
licensed in terms of the Short Term Insurance Act to provide
short-term insurance products to customers. As indicated
above AIRMS
does not provide shortterm insurance to members of the public but its
short-term insurance license has been endorsed
by the Financial
Services Board to allow AIRMS to also operate as a cell captive
insurance provider. It therefore operates as a
short-term insurance
cell captive provider in that it provides its cell captive license to
cell owners such as OFSH who act as
underwriting manager and agent of
AIRMS. AIRMS’ customers are therefore cell owners such as OFSH
that require use of its
license so that they in turn can provide
short term insurance products to their customers.
[11] In light of the
above the Commission identified the following relevant product
markets:
1. A single market
for all short-term insurance products;
2.
A separate market for each type of short-term insurance product,
namely:
Property
Transportation
Motor
Accident
& health
Guarantee
Liability
Engineering
Miscellaneous
3. A separate market
for different clusters of short-term insurance products;
4. A separate market
for cell captives.
[12] The Commission
found that the proposed transaction was unlikely to prevent or lessen
competition regardless on whether the
market is defined broadly or
narrowly and therefore it did not conclude on any of the the relevant
product markets but considered
the effect of the transaction on
competition in all of these markets. It concluded that the relevant
geographic market is the South
African national market.
Effect on
competition
[13] In the broad
single market for all short-term insurance products the merged entity
will have an estimated market share of approximately
10.3%. There are
a number of well-known competitors in this market such as Santam
(market share 19%), Guardrisk (6.3%), OUTsurance
(6.1%), Zurich (4%)
and Hollard (6.4%) to mention a few. The Commission therefore found
that the proposed transaction is unlikely
to substantially prevent or
lessen competition in the single market for all short-term insurance
products.
[14] The Commission
also considered the effect of the transaction on more narrowly
defined product markets. It identified separate
markets for each of
the seven shortterm insurance products and found that the merged
entity’s market share in each will be
as follows post the
transaction:
11.55%
(representing an accretion of 0.3%) in property cover
17.9%
(representing an accretion of 1.8%) in transport cover
10.6%
(representing a accretion of 1.1 %) in motor cover
4.2%
(representing an accretion of 2.1 %) in accident & health
cover
0.3%
(representing an accretion of 0.2%) in guarantee cover
6.8%
(representing an accretion of 0.9%) in liability cover
16.8%
(representing an accretion of 1.2%) in engineering cover
[15] The merged
entity’s market share accretion in the above product markets
are small and its market shares remain low. There
are several
competitors in each of these markets, of which the market shares of
the largest players are set out in the table below:
Competitor
Property
Transport
Motor
Accident
& Health
Guarantee
Liability
Engineering
Merged
entity
11.5
17.9
10.6
4.2
0.3
6.8
16.8
Santam
19.8
28.8
21
5.4
1.8
30
24.7
Guardrisk
5.8
13.10
2.8
20.2
2.10
11.6
15.2
Hollard
4.1
7.5
9.4
6.7
1.4
1.3
5.8
OUTsurance
5.8
0.6
9.4
0
1.4
0.9
0
Zurich
4.4
4.6
4.1
3.4
0
2.2
9.2
[16]
It is therefore unlikely that the merged entity would be in a
position to exercise market power in any of the identified short-term
insurance segments as set out above.
[17] The Commission
also considered the market shares of the merged entity with regard to
the different clusters of short-term insurance
products namely
Personal Business, Corporate Business and Commercial Business. It
found that the merged entity will have a post
merger market share of
7.35% in the personal product cluster, 7.89% in the corporate product
cluster and 15.55% in the commercial
product cluster. Numerous
players are active in these markets and the transaction therefore
does not raise any competition concerns
in the identified clusters.
[18] Since the
merged entity will not be active in the market for cell captives post
the transaction I do not have to consider the
effect of the
transaction on this market.
Public interest
[19] There were no
employment or any other public interest concerns raised in this
transaction.
Conclusion
[20] Although the
proposed transaction results in an horizontal overlap in the short'
term insurance activities of the merging parties,
the accretion in
ail of the possible product markets identified by the Commission,
whether broad or narrow, is relatively insignificant
and the merged
entity’s market shares will remain low. There are also numerous
competitors in all of these markets. The transaction
is therefore
unlikely to substantially prevent or lessen competition in any of the
relevant markets.
[21] I accordingly
approve the transaction unconditionally.
7 March 2014
Date
Takalani Madima
Medi Mokuena and
Anton Roskam concurring
Tribunal Researcher:
Rietsie Badenhorst
For the merging
parties: Norton Rose Fullbrecht
For the Commission:
Grace Mohammed
1
The
merging parties intend to terminate the cell post the transaction and
offer the same short-term insurance products through AIRMS
general
short-term insurance license.