Affected market: Insurance
The OFT’s decision on reference under section 33 given on 10 August
2005. Full text of decision published 16 August 2005.
Please note that square brackets indicate information excised, or
exact figures replaced by a range, at the parties' request for reasons
of commercial confidentiality.
Britannic Group plc (Britannic) is a financial services group with
two divisions. The Asset Management Division manages investment
portfolios on behalf of individuals and large institutional clients. The
Assured Services Division owns and administers closed life funds through
a service company (Britannic Management Services Limited) and a number
of closed life insurance companies.
Resolution Life Group Limited (Resolution) was formed in October
2002 for the purpose of buying and running closed life insurance funds.
In the period from 11 April to 31 December 2004, Resolution group's
turnover (i.e. its gross premium income) was £190.7 million. All but a
negligible part of this turnover was generated in the UK.
On 9 June 2005, Britannic announced that it had entered into a merger
agreement with Resolution. Under the terms of the merger, Britannic will
acquire the entire issued and to be issued ordinary share capital of
The parties notified the transaction on 29 June 2005. The extended
statutory deadline expires on 10 August 2005.
As a result of this transaction Britannic and Resolution will cease to
be distinct. The UK turnover of Resolution exceeds £70 million, so the
turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act)
is satisfied. The OFT therefore believes that it is or may be the case
that arrangements are in progress or in contemplation which, if carried
into effect, will result in the creation of a relevant merger situation.
RELEVANT FRAME OF REFERENCE
A life fund invests premiums from life assurance policies in, for
example, equities, property, fixed interest securities and cash. When a
customer opens a policy in a life fund, they purchase units in the fund.
Policy holders in a life fund have the choice of a number of different
policy contracts, which can broadly be categorised as protection
policies, investment policies and annuities.
An open life fund is one which continues to write new business and
accept new customers. The fund can grow through new customers buying
policies, or existing customers topping-up their policies.
A closed life fund is one that no longer accepts new business. It will
continue to be managed for the existing policyholders and they can
continue to top-up their policies (which means the fund can continue to
grow in value).
The parties’ activities overlap in the operation of closed life funds.
In its recent decision on the completed acquisition by Britannic
Assurance plc of Allianz Cornhill Insurance plc's life operations (see
[note 1]) the OFT considered two possible approaches to the
relevant product scope in this sector (see [note 2]).
On the one hand, it might be relevant to treat open and closed life
funds as forming part of the same product scope, on the basis that the
availability of competitively priced policies offered by open life funds
may constrain the conduct of operators of closed life funds.
Alternatively, if switching or termination costs for policy holders in
closed life funds are high, each closed life fund could be in a separate
frame of reference.
The parties consider that in deciding the relevant frame of reference,
it is necessary to take account of the nature of the policy contracts
comprised in the relevant funds. The parties submit that the funds
operated by them substantially comprise (i) policies capable of being
surrendered or transferred for value, and (ii) protection policies
subject to competition from open life fund operators, and therefore,
switching opportunities indicate that they compete with open life fund
Third party views on switching were mixed, with many considering that
the level of switching depended on the type of policy. Most third
parties were of the view that switching did generally occur and that
this depended on whether the customer was able to find a better policy
or their circumstances had changed.
This possibility of switching between closed and open life funds may
suggest that the relevant product scope should include both types of
funds. However, given that no competition concerns arise on any
definition, it is not necessary to reach a firm conclusion on the
product scope here.
Insurers from abroad would need to gain regulatory clearance from the
Financial Services Authority to operate in the UK. Previous cases
involving the insurance sector considered the UK as the relevant
geographic frame of reference, and the OFT has found no evidence in this
case to suggest that a substantial number of individuals look beyond the
UK for life assurance suppliers. Therefore the relevant geographic scope
is considered to be the UK.
If closed life funds do not compete with each other, then the
combination of the parties' closed life funds raises no competition
If each closed life fund competes with all open life funds, then the
parties’ combined share of supply of long term insurance will be less
than five per cent (see [note 3]) and consequently, no
competition concerns arise.
Britannic has positioned itself as a ‘consolidator’ in the closed life
fund sector and Resolution was formed for the purpose of buying and
running closed life funds. In light of this, the parties might be
regarded as competitors in the acquisition of closed life funds.
However, the parties’ combined share of supply of closed life funds
will be around [15-25] per cent (see [note 4]) and third
parties have indicated that Britannic and Resolution have not always bid
for the same funds. Third parties also noted that a number of other
buyers of closed life funds, of various sizes, will remain.
There is no evidence that this transaction raises any vertical issues.
THIRD PARTY VIEWS
None of the third parties contacted raised concerns about this
The parties to this transaction overlap in the operation of closed life
funds. However, given the nature of such funds and the fact that no new
business is accepted into them, the parties are not considered to be
actual or material potential competitors. Even if the relevant frame of
reference is widened to include open life funds, the merged entity’s
share of supply is so small as to raise no competition concerns. Both
parties have acquired closed life funds in the past but their combined
share of supply of closed life funds is low, and third parties have
indicated that a number of other buyers will remain post-merger.
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- 6 May 2005.
- The exact product scope was left open in the Britannic-Allianz case
since the transaction did not raise competition concerns on either
- The parties provided estimates of shares of supply on the three
measures used to describe the supply of life assurance in the UK:
assets, premium income and new business Annual Premium Equivalent.
- On the basis of assets under management in closed life funds.