Specialist insurance software merger may raise competition concerns
The CMA has found that the completed acquisition by Xchanging of certain companies of Agencyport gives rise to a realistic prospect of a substantial lessening of competition and will be referred for an in-depth phase 2 investigation unless acceptable undertakings are offered.
Xchanging Holdings Limited and Xchanging, Inc. (Xchanging) and Agencyport Software Group (Agencyport) supply specialist software to the insurance market, in particular insurers and reinsurers and Lloyd’s of London (Lloyd’s) registered managing agents. Xchanging completed its acquisition of Agencyport on 4 July 2014, which included Agencyport’s policy administration system (PAS) software for these users in the insurance market.
The Competition and Markets Authority (CMA) found at the end of its phase 1 investigation that the merger may lead to competition concerns in the supply of PAS for Lloyd’s registered managing agents. The merger will reduce the number of major suppliers of PAS software for these users from 4 to 3. The CMA found that it would be difficult for suppliers of insurance software to general commercial insurers and reinsurers to develop software with the required functionality and launch a successful competing product. The CMA did not receive evidence that entry by competitors supplying PAS software to insurers and reinsurers outside of Lloyd’s would be sufficiently timely to mitigate any harm arising from the merger in the short term.
The CMA has concerns that the merger may lead to higher prices or a reduction in choice or quality for Lloyd’s registered managing agents or reduce the incentives of suppliers to innovate. This merger will therefore be referred for an in-depth phase 2 investigation unless Xchanging offers acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.
Sheldon Mills, CMA Senior Director of Mergers and decision maker in this case said:
Policy administration systems are critical, core software products for managing agents active in the Lloyd’s market. Insurers assist companies and/or individuals to manage risks and face an increasing number of regulatory requirements which is likely to increase their reliance and use of software solutions. The loss of competition between the 4 major suppliers could lead to higher prices or reductions in product quality or innovation. A detailed assessment will seek to ensure that the merger does not lead to detriment to insurers and ultimately consumers and businesses in the UK.
This merger was called in for review as a result of the CMA’s merger intelligence function.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the Office of Fair Trading, as amended by the Enterprise and Regulatory Reform Act 2013.
- The Reference Test – under the Enterprise Act 2002 (the Act) the CMA has a duty to make a reference to phase 2 if the CMA believes that it is or may be the case that a relevant merger situation has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Under the Act a relevant merger situation is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the United Kingdom (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- The CMA is also considering the anticipated acquisition by Xchanging of Total Objects Limited (TOL), which it considers to be a parallel transaction for the purposes of its assessment. TOL also supplies specialist insurance software to a number of participants in the insurance industry.
- The duty to refer is not exercised pursuant to section 22(3)(b) whilst the CMA is considering whether to accept undertakings under section 73 of the Act in lieu of a reference. Pursuant to section 73A(1) of the Act, Xchanging has until 9 December 2014 to offer an undertaking to the CMA that might be accepted by the CMA under section 73(2) of the Act. If no undertaking is offered or accepted, then the CMA will refer this merger pursuant to sections 22(1) and 34ZA(2) of the Act.
- All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision makers on phase 2 inquiries.
- The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- The inquiry group may extend the 24-week period within which it is required to publish its report by no more than 8 weeks if it considers that there are special reasons why the report cannot be published within that period.
- The full text of this decision will be placed on the case page as soon as is reasonably practicable.
- Enquiries should be directed to Siobhan Allen (020 3738 6460, Siobhan.Allen@cma.gsi.gov.uk).
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