Affected market: Household insurance
The OFT’s decision on reference under section 22(1) given on 6 July
2005. Full text of decision published 28 July 2005.
CGU International Insurance plc (CGU) is a wholly-owned indirect
subsidiary of Aviva plc (Aviva). Aviva is the holding company of the
Aviva group of companies, which carries out life assurance and long-term
savings business, fund management and all classes of general insurance.
In 2004, Aviva achieved worldwide turnover (consolidated gross premium
income) of £35 billion.
Gresham Insurance Company Limited (Gresham) is a private limited
company based in England. It is the principal insurance underwriting
company for household insurance associated with Barclays and The
Woolwich (both part of the Barclays Group (Barclays)) in the United
Kingdom (UK). In 2004, Gresham achieved turnover of approximately £146.4
million (reported gross written premiums) all in the UK.
The transaction was completed on 31 March 2005.
Details of the transaction were obtained from the parties through direct
enquiry by the OFT. A satisfactory submission was received on 13 May
2005 and therefore the administrative timetable expires on 11 July 2005.
The statutory time limit expires on 29 July 2005.
As a result of this transaction CGU and Gresham have ceased to be
distinct. The UK turnover of Gresham 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 a relevant merger situation has been created.
The parties overlap in the supply of household insurance. On the demand
side, there is little or no substitutability between household insurance
and other ‘general’ insurance or non-life services such as travel or
On the supply side, there may be an element of substitutability on the
basis that insurance products require a common set of skills and
resources in terms of risk assessment, administration and claims
management. Most insurance companies provide a range of insurance
services and can easily switch to the various different types of
non-life insurance services. However, given that the OFT considers there
to be no competition concerns arising from any definition (see below),
it is not necessary to reach any firm conclusion on the relevant product
frame of reference.
There are no regional variations with regard to pricing except to
account for different risk factors (e.g. in high flood risk areas). Many
insurance companies are active through out the UK and given the
differences in regulatory requirements and national distribution systems
across countries it is appropriate to limit the geographic scope to the
The parties overlap in the supply of household insurance. To the extent
that a wider relevant frame of reference is taken to include all
non-life insurance the parties’ combined share of supply is
significantly below 25 per cent with a minimal increment to share of
supply (less than 1 per cent).
If a narrow product frame of reference is taken i.e. household
insurance, the parties’ submit that the combined share of supply will
be 10-20 per cent (see [note 1]) (increment less than 5 per
cent (see [note 1]). Although the merger has added to the share
of one of the largest household insurance suppliers in the UK, the
household insurance sector remains large and fragmented with numerous
Barriers to entry and expansion
Barriers to entry into general insurance appear high due to the need for
regulatory authorisation and to capital adequacy requirements which form
part of the regulatory regime. However, these barriers do not appear to
be prohibitive and the parties point to the recent entry of HBOS in
2004. Barriers to expansion into household insurance services appear to
be low as insurance companies with expertise in one or more product
lines are normally able to reapply those skills to enter other product
Given that there are no competition concerns about this transaction no
conclusions are drawn on buyer power.
The OFT has found no evidence that this transaction raises any vertical
THIRD PARTY VIEWS
No third party expressed any concern about this transaction.
This transaction does not raise any significant concerns on any
reasonable frame of reference. The parties’ combined share of supply in
non-life insurance is significantly less than 25 per cent. If a narrow
frame of reference is taken (i.e. household insurance) the combined
post-merger share of supply is approximately 10-20 (see [note
1]) per cent which includes a small increment (less than 5 per
cent (see [note 1]) to Aviva's share of supply in this sector.
Post-merger, the household insurance sector is fragmented with numerous
credible suppliers. Barriers to entry from existing suppliers of
non-life insurance are also low.
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- Exact figure replaced by a range at Aviva’s request