competltion trlbunal
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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM235Mar17
In the matter between:
GUARDRISK INSURANCE COMPANY LIMITED
And
RMB STRUCTURED INSURANCE LIMITED'S PERSONAL
LINES, COMMERCIAL LINES AND SMART DEVICE
INSURANCE BUSINESS MANAGED BY CIB PROPRIETARY
LIMITED
Panel
Heard on
Order Issued on
Reasons Issued on
APPROVAL
: Norman Manoim (Presiding Member)
: Enver Daniels (Tribunal Member)
: lmraan Valodia (Tribunal Member)
: 31 May 2017
: 31 May 2017
: 22 June 2017
REASONS FOR DECISION
Acquiring Firm
Target Firm
[1] On 31 May 2017, the Competition Tribunal approved the large merger between
Guardrisk Insurance Company Limited ("Guardrisk") and RMB Structured
Insurance Limited's ("RMBSI") Personal Lines, Commercial Lines And Smart
Device Insurance Business Managed By CIB Proprietary Limited ("CIB").
[2] The reasons for the approval follow.
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PARTIES TO THE TRANSACTION AND THEIR ACTIVITIES
Primary Acquiring Firm
[3] The primary acquiring firm is Guardrisk, a public company wholly incorporated
in accordance with the laws of the Republic of South Africa. Guardrisk is a
wholly-owned subsidiary of Guardrisk Group (Pty) Ltd which is, in tum, a wholly
listed subsidiary of MMI Strategic Investments (Pty) Ltd, ultimately controlled
by MMI Holdings Limited (collectively "the MMI Group"), a public company listed
on the Johannesburg Securities Exchange Limited ("JSE"). Guardrisk does not
directly or indirectly control any firms.
[4] The MMI group develops, markets, and distributes a variety of short term and
long term insurance products and offers asset management, savings,
investment, healthcare administration, short term insurance, and employee
benefits cover services as well as providing long term credit life products in
South Africa.
[5] Within the MMI group, Guardrisk provides long term alternative risk transfer
insurance products to corporates and retirement funds to cover post-retirement
healthcare liabilities and to self-insure employee risk benefits.1
Primary Target Firm
[6J The target businesses are RMBSl's personal lines, commercial lines, and smart
device insurance policies, all of which are managed by CIB. The insurance lines
pre-merger are directly controlled by RMBSI which is the underwriter of all
policies in the target businesses. RMBSI is controlled by Swanvest 120 (Pty}
Ltd which is, in turn, wholly controlled by Santam Life Limited, a firm listed on
the JSE.
1 In this regard, Guardrisk is short-term and long-term insurer registered in terms of the Short Term
Insurance Act, no. 53 of 1998(as amended) ("STIAn).
2
[7] The target businesses are administered by CIB in its capacity as an
underwriting manager as defined by the South African Short Term Insurance
Act2 ("STIA") and in accordance with a binder agreement entered into between
CIB and RMBSI. CIB manages the target business through brokers and mainly
relate to property and motor risks. Mr. Joubert, for Guardrisk, indicated at the
merger hearing that CIB owns the relationships with brokers and via such they
place business to the insurer or policy holder. 3
PROPOSED TRANSACTION AND RATIONALE
[8] In terms of the short-term insurance business agreement entered into between
Guardrisk, RMBSI, and CIB, Guardrisk intends to purchase the RMBSI
insurance business managed by CIB. The transfer is subject to approval in
terms of s37 of the STIA. Pursuant to the implementation of the transaction, the
target businesses will be directly controlled by the primary acquiring firm but will
continue to be managed by CIB in accordance with a binder agreement entered
into between CIB and Guardrisk.
[9] At the merger hearing on 31 May 2017, the representative for the merging
parties indicated that the transaction amounts to no more than a changing of
the licensee in that the insurance license holder moves from RMBSl's book to
Guardrisk's.4
[1 O] In terms of rationale, the merging parties submitted that the business strategies
of CIB and RMBSI had diverged since the inception of the binder relationship
them. Given the change in strategic views, the two parties mutually agreed that
the best path forward was for CIB to find an alternative insurer, which it did in
Guardrisk.s
2 Act no. 53 of 1998 (as amended).
3 Tribunal Transcript , 31 May 2017, page 4, lines 7-9.
4 /bid, page 6, lines 8-11.
5 Competitiveness Report, page 3, Merger Record, page 55; Tribunal Transcript, 31 May 2017, page 7,
lines 19-25.
3
RELEVANT MARKETS AND IMPACT ON COMPETITION
[11] On the Commission's analysis, the merging parties are both active in the broad
market for the provision of short-term insurance products as comprised of a
number of narrower markets. 6
[12] In addressing the horizontal overlap in the broad market for the provision of
short term insurance products, the Commission submitted that the merged
entity would possess approximately 8.2% of the market share with a market
share accretion of less than 0.5%. The merging parties submitted that there are
a number of strong competitors in the market and that the switching costs are
insignificant due to the fact that legislation facilitates the ability of customers to
easily switch insurance products. These factors strongly indicate that the post
merger entity would be constrained from exercising market power.
[13] In none of the narrower markets surveyed by the Commission did the market
share accretion exceed 3.5%.7 In only two of such markets would the merged
entity possess a market share percentage of above 20% and in both of such
markets, the high market share was existent pre-merger. 8
[14] The Commission concludes in its report that the proposed transaction is unlikely
to give rise to unilateral effects in the broad market for the provision of short
term insurance products or any of the narrower markets assessed. We see no
reason to differ from this conclusion.
[15] The merger does not present a threat of preventing or lessening competition in
any of the identified markets.
6 These markets are: The narrow market for short term: property; transport : motor; accident and health;
liability; and miscellaneous insurance. Additionally the Commission assessed the narrow markets for
commercial short-term insurance products and the narrow market for personal short-term insurance
products.
7 Competition Commission report, page 17.
e Ibid, para 37.
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PUBLIC INTEREST
[16] The merging parties confirmed that the proposed transaction will have no effect
on employment owing to the fact that the target businesses, as insurance lines,
have no employees.
[17] Addressing the potential impact of the merger on consumers, Mr. Joubert stated
at the merger hearing that the merger would not result in any change to the
terms of existing policyholders' policies and, in the unlikely event that he was
wrong, legislation requires that no policy holders are placed in a "worse off'
position.9
CONCLUSION
[18] The merger is unlikely to substantially prevent or lessen competition in the
provision of individual long term credit life insurance products in South Africa
and the market for the provision of corporate group long-term credit life
insurance products in South Africa.
[19] The merger additionally does not raise any public interest concerns as the
target business are lines of insurance and thus have no employees.
[20] Accordingly we approved the transaction without conditions.
22 June 2017
Mr. Date
Mr E Daniels and Prof I Valodia concurring
Tribunal Researcher:
For the Merging Parties:
For the Commission:
Alistair Dey-Van Heerden
Ryan Goodman and Minenhle Samba of EnsAfrica
Boitumelo Makgoba
9 Tribunal Transcript, 31 May 2017, page 5, lines 13-18.
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