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Horizontal overlaps in
Life insurance in
The acquisition consists of Erste Bank's 90 percent stake in s Versicherung together with its subsidiaries, and the insurance subsidiaries of BCR.
VIG wants access to Erste Bank's banking outlets in Central and Eastern European countries so that it can sell its life and non-life insurance products in those territories. To achieve this, a distribution co-operation agreement has been entered into between the parties and goes hand-in-hand with the purchase of the 90 percent stake. The agreement is to last for 15 years with both partners committed to selling each other’s products through their respective sales channels.
Traditionally the commission has distinguished between life insurance, non-life insurance and reinsurance. The geographic scope of these product markets is national due to established market structures, national distribution channels, fiscal constraints and varying regulatory systems.
An analysis of the parties' activities indicates that there will be affected horizontal markets, where the parties' combined market share reaches 15 percent or more, in life insurance in
Affected markets also arise in
In
Erste Bank, through s Versicherung, has roughly 11 percent in Austrian life insurance and is number four. This will result in a combined share, minus BACA, of 30 percent.
Other participants include Uniqa with 20 percent, Generali with 13 percent, Allianz with 6 percent, Skandia with 3 percent,
Although VIG will shrink its share by eight percent with the sale of its BACA business the combination still falls outside of the HHI safe zone.
In this scenario VIG will probably make three arguments. One, that barriers to entry in both life and non-life insurance markets are low with potential entrants ready to step in should market conditions suit as long as they can get re-insurance. Two, that the traditional market definition of life insurance is dated and it is actually part of a much wider wealth creation product market. And three, that the Generali, PPF merger was approved by the commission last year even though the combined entity enjoys a market share of above 30 percent.
The Generali clearance decision hinted at the possibility that certain life insurance products comprising endowment and unit-linked policies fall into a broader 'savings and investment products' market.
Such an approach is supported by the European Insurance and Reinsurance Federation. In its 'European Life Insurance Market in 2005' report it claims that “life insurance products, with guarantees on interest rates or in unit-linked form, compete with other financial savings products such as pension funds, bank accounts, shares, … and with other investment products, such as real estate”.
However in Generali, PPF the parties as well as the commission's market investigation do not claim the above is true for all life insurance products, certain of which would fall into a standard 'life risks' market, and others into a 'supplementary pension' insurance market.
Arguably market definition is more complicated in the 'old' 15 member States due to the more mature nature of the insurance sector in those countries. Generali, PPF focused upon the Czech market where life insurance products may not compete so vigorously with other savings products, although competition between life insurance and other savings products is recognised in part with the proposed savings and investments product market.
In either case, VIG's sale of BACA is likely to be proposed as a remedy in Phase I meaning that the initial Phase I clearance deadline of 3 June is likely to change to 17 June in due course.
And while the above arguments may succeed for life insurance, non-life insurance within
Here VIG currently enjoys an overall number one position with a 32 percent stake. This would be combined with Erste Bank's 10 percent market share.
However the parties and commission market investigation in Generali, PPF made a strong case for the further segmentation of non-life insurance into seven markets including accident and sickness, motor vehicle, and property.
When segmented into these narrower markets it is the motor vehicle insurance market in
Competition comes from companies including Allianz with approximately 24 percent, Uniqa with 10 percent, and Generali with 6 percent.
In order to appease the regulator VIG may be required to divest part of its Romanian business. If required VIG's Unita subsidiary makes up roughly 10 percent of the market and could be sold in order to get the deal through.
A merger control filing has been made in
By Dafydd Nelson and Anne MacGregor