Old Mutual takes over Marsh Insurance
Nqobile Bhebhe, [email protected]
THE Competition and Tariff Commission (CTC) has approved without conditions Old Mutual Zimbabwe (OMZ)’s acquisition of Marsh Zimbabwe (Marsh), an insurance and reinsurance broker business.
Marsh has an insurance and reinsurance broker business in Zimbabwe, and also offers pension administration services.
Old Mutual is a Zimbabwean-registered company with various subsidiaries operating in the financial services sector and related markets.
Its operations involve short-term and life insurance, asset management, stock broking, funeral, and banking services.
In its latest newsletter, CTC indicated that it was notified of the acquisition in October last year.
In 2017, CTC launched its competition policy whose goal is to address challenges related to the control of mergers and acquisitions, anti-competitive agreements, cartels, and misuse of market power in key sectors.
“The commission classified the transaction as a vertical merger because there is a customer-supplier relationship between Old Mutual and Marsh,” said CTC.
“The commission defined the relevant market as the provision of short-term and life insurance and insurance broking services to the whole of Zimbabwe.
“Though both merging parties offer pension administration service, their contribution to the total fund administration services offered in the market is less than six percent and its contribution towards the business revenue and activities is insignificant.”
In considering the acquisition, the commission noted that it looked at theories of harm that affect vertical mergers namely input and customer foreclosure.
Foreclosure, in this case, was analysed in line with the insurance broking and short-term insurance services only, said CTC.
Input foreclosure arises when the merged entity restricts access to the products or services that it would have otherwise supplied if the merger had not taken place.
CTC said the risk for competition relates to the effects from increases in input costs for rivals on the downstream market, especially if the merging firm has market power in the upstream market.
“Bright Insurance Brokers (a subsidiary of Marsh) market share of 14 percent means that the company does not have market power.
“The regulator (Insurance and Pensions Commission) sets a commission, which brokers should receive for any business that will have been given to insurance companies,” said CTC.
“Hence, the broker has no ability to alter prices for Old Mutual competitors. The insurance business is also risky in that the insurance broker would require several insurance companies that it deals with to ensure customers’ different needs are satisfied.
This, therefore, limits the likelihood of input foreclosure taking place,” it said.
To that end the regulator said Bright Insurance is not a sufficiently large customer to provide Old Mutual with enough business to cater for its capacity, hence it is not feasible for Old Mutual to foreclose other brokers from accessing its services.
“In relation to customer foreclosure, the regulator in the market, wherein the merging parties operate, stipulates that a maximum limit of business to be channelled to a related insurance company by a broker should not exceed 20 percent,” it said.
“This takes away the ability of Bright Insurance to foreclose as well as the incentive to do so since 80 percent of its business should come from other sources besides Old Mutual.”
CTC added that brokers’ income is prescribed by IPEC therefore there is no ability for Old Mutual to pay other brokers less than what it would pay Bright post-merger.
It concluded that: “Given the analysis and the consideration that the merged entities will continue to operate separately; and that the merger was not substantially lessening competition, the commission approved the merger without conditions.”