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[2014] ZACT 44
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MMI Strategic Investments (Pty) Ltd v Guardrisk Group (Pty) Ltd (018176) [2014] ZACT 44; [2014] 1 CPLR 12 (CT) (12 March 2014)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case No: 018176
In the matter between:
MMI Strategic
Investments (Pty)
Ltd
Acquiring
Firm
And
Guardrisk Group (Pty)
Ltd
Target
Firm
Panel
Anton
Roskam (Presiding Member)
Medi
Mokuena (Tribunal Member)
Merle
Holden (Tribunal Member)
Heard on
12 February 2014
Order issued on
12 February 2014
Reasons issued on
12 March 2014
Reasons for Decision
Approval
1.
On 12 February 2014 the Competition Tribunal (the “Tribunal”)
unconditionally approved an acquisition by MMI Strategic
Investments
(Pty) Ltd (“MMI Strategic Investments”) of Guardrisk
Group (Pty) Ltd (“Guardrisk”).
2.
The reasons for the approval of the proposed transaction
follow.
The Parties and
their activities
3.
The primary acquiring firm is MMI Strategic Investments, a
private company registered in terms of the laws of the Republic of
South
Africa. MM I Strategic Investments is controlled by MMI
Holdings Ltd (“MMI Holdings”), a public company
incorporated
in terms of the laws of the Republic of South Africa.
MMI Holdings is listed on the Johannesburg Securities Exchange Ltd
(“JSE”),
and is not controlled by any other firm. The
shareholders that hold 5% or more of the issued share capital of MMI
Holdings are:
RMI Holdings Ltd (24.5%), Government Employees Pension
Fund (9.4%), Kagiso Tiso Holdings (Pty) Ltd (7.1%), Liberty Life
Association
of Africa Ltd (3.1%) and FirstRand Empowerment Trust
(3.0%). MMI Strategic Investments controls Strategic Real Estate
Managers
(Pty) Ltd. MMI Holdings and its subsidiaries are herein
after referred to as the MMI Group.
4.
The MMI Group develops, markets and distributes a variety of
products such as long and short-term insurance, asset management,
savings,
investments, healthcare administration and employee
benefits.
5.
The primary target firm is Guardrisk, a private company
incorporated in terms of the company laws of the Republic South
Africa.
Guardrisk is controlled by Alexander Forbes Acquisition (Pty)
Ltd (“AF Acquisition”), a wholly-owned subsidiary of
Alexander Forbes Funding (Pty) Ltd (“AF Funding”). AF
Funding is in turn ultimately controlled by Alexander Forbes Equity
Holdings (Pty) Ltd (“AF Holdings”). AF Holdings is
controlled by a consortium of firms and the five largest members
of
the consortium are: Ontario Teachers’ Pension Plan Board
(16.5%), Actis AF Holdings Ltd (12.2%), Caisse de depot at placement
du Quebec (9.1%), Ethos Capital V GP (Pty) Ltd (8.6%) and HarbourVest
International Private Equity Partners (3.7%).
6.
Guardrisk
has the following three South Africa business units: (i) Guardrisk
Insurance offering short-term ART insurance specifically
through
first party cells and contingency policies as well as third party
cells
[1]
(ii) Guardrisk Life which provides long-term ART insurance products
for first party cells to corporate and retirements funds to
cover
post-retirement healthcare liabilities and self-insure employee risk
benefits and (iii) Guardrisk Allied Products and Services
which is a
specialist short-term underwriting manager.
Proposed
transaction and rationale
7.
MMI Strategic Investments intends to acquire the entire issued
share capital of Guardrisk. Post-merger, MMI Strategic Investments
will have sole control over Guardrisk.
8.
MMI Holdings submitted that this transaction presents an
opportunity to enhance its offering to corporate clients as well as
an
invaluable entry into the short-term commercial insurance market.
9.
Guardrisk submitted that this transaction would enhance its
continued commitment to grow its core employee benefits, investment
and risk businesses in order to facilitate the strategic objective of
securing its clients’ well-being.
Competition
Analysis
10.
The Commission identified horizontal and vertical overlaps in
the actitivities of the merging parties.
Horizontal Analysis
11.
The horizontal overlaps identified by the Commission are in
respect of the following broad markets: (i) long-term insurance
products,
(ii) short-term insurance products and (iii) long-term ART
insurance products. In relation to long and short-term insurance
products,
the Commission further defined the markets more narrowly by
differentiating between individual and corporate customer segments as
well as property, transportation, motor and liability categories
respectively. The relevant geographic market was defined by the
Commission as being national. The Commission found that the merging
parties’ post-merger market shares will be as follows:
(i)
The broad market for long term insurance - 14.36% and the
narrow markets for long-term insurance to individuals and corporate -
15.13% and 13.6% respectively.
(ii)
The market for short-term insurance products - 6.6% and the
narrow markets for short-term insurance, i.e. property,
transportation,
motor and liability - between 3.3% and 13.2%.
(iii)
The market for ART insurance - 23.96%.
12.
The Commission found that the insurance market is highly
competitive and that post-merger the merged entity will continue to
be constrained by several other competitors such as Santam, Old
Mutual, Liberty Group, Discovery Life, Coronation Life, Investec,
Allan Gray Life, ABSA Life, Regent and others.
Vertical Analysis
13.
The
Commission identified the following two vertical overlaps in the
activities of the merging parties: (i) the MMI
Group currently
sources specialized insurance in the form of mine rehabilitation
insurance
[2]
products from Guardrisk and (ii) Some of Guardrisk’s long-term
insurance cell clients use the MMI Group as a manager for
some of
their cell assets (asset management).
Mine rehabilitation
insurance products
14.
In assessing the likelihood of input foreclosure, the
Commission found that insurance firms such Guardrisk compete with
large commercial
banks in issuing mine rehabilitation insurance
products (guarantees). Further, even though Guardrisk is one of the
two largest
insurers of mine rehabilitation insurance products, the
Commission found that insurance firms account for an estimated 14.14%
while
banks account for an estimated 85.56% of the entire market for
the issuance of mine rehabilitation guarantees. Furthermore, the
total revenue generated by Guardrisk from providing mine
rehabilitation insurance products to clients introduced to it by the
MMI Group during 2013 was less than 10%, meaning that Guardrisk’s
other customers accounted for the majority of its total
revenue. In
relation to customer foreclosure, the Commission found that the MMI
Group has not sourced mine rehabilitation insurance
products for its
clients from any insurer other than Guardrisk. The Commission
therefore concluded that the proposed transaction
is unlikely to
raise any foreclosure concerns in this market.
Asset Management
Services
15.
In this market and in relation to input foreclosure the
Commission found that the MMI Group’s asset management business
account
for approximately less than 5% of the total asset management
market and competes with other firms such as ABSA, PSG, Investment
Solutions, Prudential, Sanlam and others. Further, Guardrisk’s
cell clients are the ones
who
elect their own preferred asset manager and Guardrisk’s fees
paid to the MMI Group in relation to Guardrisk’s long-term
cell
clients are insignificant as compared to the total revenue generated
by the MMI Group in its asset management business. In
relation to
customer foreclosure, the Commission found that the Guardrisk’s
long-term insurance cell business under the management
of the MMI
Group accounts for less than 10% of its total asset value. The
Commission therefore concluded that the proposed transaction
is
unlikely to raise any foreclosure concerns in this market.
Public interest
16.
The
merging parties confirmed that the proposed transaction will have no
adverse effect on employment and will not result
in any retrenchments
in South Africa.
[3]
The proposed transaction raises no other public interest concerns.
Conclusion
17.
For the reasons mentioned above, we approve the proposed
transaction unconditionally.
12 March 2014
Date
Mrs. Medi
Mokuena
Mr. Anton Roskam and
Professor Merle Holden concurring
Tribunal researcher:
Ipeleng Selaledi
For the merging parties:
Desmond Rudman of Webber Wentzel
For the Commission:
Reabetswe Molotsi
[1]
According to the parties, ART insurance involves the use of
techniques that permit entities to take a more direct roie
in their
insurance and reinsurance protection. One type of ART insurance
product involves the use of “cell captives”,
which are
insurance vehicles created by insurance companies (referred to as
the “cell provider
11
or “cell promoter”), whereby the cell provider's
insurance licence is effectively extended for use by another
organisation
(referred to as the “ceil owner” or
client”) for the insurance of the cell owner’s own
liabilities (referred
to as “first party cell”) or the
liabilities and/or lives of the cell owner’s customers or
members (referred
to as a “third party” cell).
[2]
According to the merging parties, mine rehabilitation insurance is a
mechanism used by mining firms to meet the requirements
of the
Mineral and Petroleum Resources Department
Act to provide assurance
of available financial resources for the rehabilitation of mining
sites. Mine rehabilitation insurance
is regulated by the Department
of Mineral Resources together with the Financial Services Board in
order to ensure that products
provided by insurance companies are
done in a sound manner.
[3]
See merger record, page 7. Also see paragraph 7.1 of the
Commission’s merger report.