Affected market: Life insurance
The OFT’s decision on reference under section 33(1) given on 24 July
2006. Full text of decision published on 3 August 2006.
Please note that square brackets indicate figures or text which have
been deleted or replaced at the request of the parties for reasons of
Resolution plc (Resolution) purchases and operates life insurance
funds that have ceased writing life business to new customers (closed
life funds). Resolution also operates an asset management business,
which in addition to managing the assets of Resolution's closed life
funds, provides asset management services to third party institutional
customers and a range of retail asset management products.
Abbey National Life (Abbey Life) comprises the life insurance
businesses of Abbey National plc (Abbey National). These businesses
include both open and closed life funds, which offer a wide range of
long-term products – investment and protection policies, pensions and
annuities. Abbey Life's UK turnover for the financial year ended 31
December 2005 was [over £70 million].
Resolution has entered into a sale and purchase agreement with Abbey
National, dated 7 July 2006, to acquire Abbey Life.
As a result of this transaction Resolution and Abbey Life will cease to
be distinct. The UK turnover of Abbey Life 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 is an investment fund that individuals can participate in
through the purchase of a policy. The funds may be invested in a number
of ways, including, equities, property, fixed interest securities and
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. However, most
life insurance products satisfy similar consumer needs and are
considered as substitutes; (see [Note 1]) hence we have not
considered further segmentation for the purposes of assessing this
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).
In addition to managing the assets of Resolution's closed life funds,
Resolution also provides asset management services to third party
institutional customers and a range of retail asset management products.
Asset management is the management or administration of life funds or
other insurance funds owned by separate companies. Whilst Resolution is
active in the provision of asset management services, Abbey Life is not.
Therefore, the OFT does not consider that there is an overlap in the
provision of asset management services. Given the parties do not compete
in this segment and in the absence of any third party concerns this
segment is not considered further.
The parties overlap in the operation of closed life funds. However,
given the nature of closed life funds, policyholders cannot switch
between the two. Therefore, closed life funds do not compete with each
other. In Britannic Group plc/Resolution Life Group Limited the OFT
considered whether there was competition in relation to the acquisition
of closed life funds. (see [Note 2]) However, in this case, while
Resolution is a ‘consolidator’ in the acquisition of closed life
funds Abbey Life is not an active consolidator and therefore this issue
is not considered further.
The relationship between closed and open life funds was considered by
the OFT in two recent decisions: Britannic Assurance plc/Allianz
Cornhill Insurance plc (see [Note 3]) and Britannic Group
plc/Resolution Life Group Limited. The OFT considered two possible
approaches to the relevant product scope in this sector.
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.
Third party views on the level of competition between closed and open
funds were mixed, with many considering that the level of switching
depended on the type of policy. Most third parties commented there was
an element of competition as closed fund providers wished to retain
This possibility of switching between closed and open life funds may
suggest that each closed fund could be considered in the same frame of
reference as all open life funds. However, given that no competition
concerns arise on any definition, it is not necessary to reach a firm
conclusion on the product scope in this case.
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 sufficient number of individuals look beyond the
UK for life assurance suppliers. Therefore the relevant geographic scope
is considered to be the UK.
The OFT found no evidence to suggest that closed life funds compete with
each other. Therefore, the combination of the parties’ closed life
funds raises no competition concerns.
However, if we were to consider that 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 seven per cent whichever frame of
reference is considered appropriate. Consequently, the OFT does not
believe that any competition concerns arise.
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 in this regard. 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
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.
- See, for example, anticipated acquisition by Old Mutual plc of
Försäkringsaktiebolaget Skandia (30 November 2005).
- Anticipated acquisition by Britannic Group plc of Resolution Life
Group ME/1815/05 10 August 2005.
- Completed acquisition by Britannic Group Plc of Allianz Cornhill
Insurance Plc's life Operations ME/1583/05 6 May 2005.