Irish Competition Authority Decisions

1. Arrangements for the acquisition by The Canada Life Assurance Company of Great Britain Limited, (Canada Life GB), of the entire issued share capital of the Abbey Life Investment Co. Limited, (ALI), from Abbey Life (Ireland) Holdings Limited, (ALH), were notified to the Competition Authority on 17 September 1993. The notification requested a certificate, or in the event of a refusal to issue a certificate, a licence.

2. The notification relates to an agreement, dated 20 March 1992, between Canada Life GB (the purchaser), Lloyds Abbey Life plc (the guarantor), and ALH (the vendor), for the sale by the vendor of the entire issued share capital of ALI and its subsidiaries to the purchaser. The arrangements include certain non-compete provisions. By letter dated 15 March 1994, an undertaking was given on behalf of Canada Life that neither Canada Life nor any of its affiliated companies would enforce or attempt to enforce the restrictive covenants in Clause 8.2 of the notified agreement after a period of two years from the date of the agreement.

3. The purchaser is a wholly owned subsidiary of the Canada Life Assurance Company (Canada Life), a mutual company incorporated in Canada. The purchaser is engaged in life insurance, pensions and annuity business in the UK. Its subsidiary, The Canada Life Assurance Co. of Ireland Ltd., is engaged in this business in the State. The guarantor is a holding company incorporated in England and Wales with subsidiary companies engaged in insurance and other businesses mainly in the UK. Its ultimate parent is Lloyds Bank plc. Prior to the sale agreement, the Lloyds Abbey Life Group carried on business in the State through its indirectly wholly owned subsidiary Abbey Life Assurance (Ireland) Limited, (ALA), now known as Canada Life Assurance (Ireland) Limited, following the acquisition.

4. Prior to the acquisition ALI operated exclusively in the Republic of Ireland selling life and pension assurance. The Canada Life Assurance Company of Ireland Ltd. also operated in this market. Thus the relevant market in this instance is that for life assurance and for pensions. Total life assurance premiums in 1990 amounted to £1.334bn. There were 31 firms operating in the market although this total includes some overseas firms as well as their domestically based subsidiaries. Details of market shares are given below.

5. Two measures of market share are used, namely share of premium income and shares of total assets. The former figure gives an indication of performance for a given year whereas the latter reflects performance over a longer period of time. The figures show that Irish Life has a far higher market share than any other firm. Only one other firm had a share of more than ten per cent of total premium income while no other firm accounted for more than ten per cent of total assets. The combined share of the merging firms was around 5-6 per cent.

% of premium % of assets

income

Ark 3.2 0.9

Canada Life Assurance (Ireland) Ltd. 2.4 1.3

The Canada Life Assurance Co. of Ireland Ltd. 1.2 2.6

Canada Life 0.6 2.0

Hibernian Life 3.8 2.0

Irish Life 32.5 41.1

Lifetime Assurance 4.6 3.8

New Ireland 8.9 5.8

Prudential Life 3.7 3.2

Caledonian 1.0 1.8

Friends Provident Irish Managed Pension Funds 0.7 0.8

Friends' Provident Life 4.5 4.2

Norwich Union Life 7.9 8.1

Royal Liver 1.4 3.4

Scottish Provident 7.7 3.8

Scottish Provident (I) 0.1 0.2

Standard Life 6.8 7.7

Eagle Star 4.5 4.0

Others (a) 4.5 3.3

Total 100.0 100.0

(a) Includes Combined Life, ECCU, GRE Life, NM Life, NZI, Royal Life, Financial Assurance, Guardian Assurance, Life Association of Scotland, Swiss Pioneer, Scottish Legal and Sun Life of Canada.

Source: Department of Industry and Commerce, Insurance Annual Report 1992.

6. The arrangements relate to the acquisition by the purchaser of ALI and its subsidiaries and subsidiary undertakings. Clause 8.2 of the agreement as notified restricted the guarantor and its subsidiaries for three years from completion from competing with the purchaser in the State, from being interested in any business competing with the purchaser in the State and from soliciting any person who had been a customer of ALA within one year prior to the closing date. Clause 8.2 also provided that the guarantor and its subsidiaries and subsidiary undertakings were, during that period, prohibited from soliciting any person holding an ALA insurance policy to cancel, from using any records of ALA customers to solicit business and from soliciting with a view to engagement or employment any employee, agent, broker or representative in connection with any business in Ireland.

7. The parties made a detailed submission in support of their request for a certificate. This argued that the restrictions in clause 8.2 did not offend against section 4(1). It cited the EU Commission decision in Reuter/BASF and the European Court of Justice judgment in Remia along with the Authority's decision in Nallen/O'Toole in support of such arguments. They also claimed that the acquisition itself was not reviewable under section 4(1). They also claimed that the acquisition would not result in any lessening of competition in the Irish insurance market and argued that it would not greatly increase the level of concentration in the market.

8. After the Authority had expressed concerns regarding the duration of the non-compete provisions, Canada Life gave an undertaking, by letter dated 15 March 1994, that neither it nor any of its associated or affiliated companies would enforce or attempt to enforce the restrictive covenants in clause 8.2 of the notified agreement after a period of 2 years from the date of the agreement.

9. Section 4(1) of the Competition Act states that ´all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

10. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' The parties to the present agreement are corporate bodies engaged in the provision of services, namely life assurance, for gain and are therefore undertakings within the meaning of the Act.

11. The Authority has given its views on mergers in a number of previous decisions. In Woodchester it stated that it does not believe that such agreements are automatically outside the scope of section 4(1) of the Act. It does not propose to restate its reasons for such a view in the present decision. The Authority went on to indicate that before it would only regard a merger as anti-competitive where it believed that it would, or would be likely to, result in an actual diminution of competition in the market concerned. [1]

12. The Authority clarified its position further in Scully Tyrrell where it stated that:

´The Authority believes that it would generally be accepted that a market where the four firm concentration ratio fell below 40 percent is effectively competitive...the Authority believes that in a highly concentrated market a merger which results in even a relatively small increase in the market share of one of the larger firms merits closer examination.' [2]

The Authority also indicated that it might use an alternative measure of market concentration, namely the Herfindahl Hirschman Index (HHI) which is used by the US Department of Justice to evaluate mergers.

13. The figures given on market share indicate that the relevant market in this instance is highly concentrated with a four firm concentration ratio well above 40 percent. Admittedly this is due in large part to the large share held by one firm which is not a party to the present arrangements. The HHI data, however, indicate that the increase in market concentration arising as a result of the agreement is quite low. [3] The Authority therefore believes that such an acquisition is unlikely to have any effect on competition in the market. If anything its effect may be pro-competitive as the merged entity may well prove to be a stronger competitor.

14. Clause 8.2 of the agreement as notified contained a number of non-compete provisions which may be disposed of briefly. The Authority has stated in a number of decisions that a restriction on a vendor competing with the purchaser of a business may be necessary to protect the goodwill of the business being sold and where such a restriction does not exceed what is necessary for the protection of that goodwill in terms of its duration, geographic coverage and subject matter, it does not offend against Section 4(1). It has also indicated that it generally considers a period of two years as sufficient for such purposes. [4] It takes a similar view with respect to restrictions on the vendor of a business soliciting former customers or employees.

15. Clause 8.2, as notified, contained restrictions on the vendor competing with the purchaser and soliciting customers and staff for three years from completion. In the light of its previous decisions the Authority believes that a restriction of more than two years would offend against Section 4(1), unless there were compelling reasons to justify a longer restriction. In the Authority's view no such justification existed in this instance. Canada Life indicated in a letter dated 15 March 1994 their intention not to enforce the offending clauses after two years from the date of completion. Consequently the Authority believes that the agreement, as amended, no longer offends against section 4(1) and a certificate may be granted.

16. The agreement includes restrictions on the Vendor using certain trade names previously used by the business which is being sold. The Authority has already indicated in previous decisions that it does not consider that such provisions offend against Section 4(1). [5]

17. In the Authority's opinion, Abbey Life (Ireland) Holdings Limited, Lloyds Abbey Life plc and the Canada Life Assurance Company of Great Britain and Ireland Limited are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition by Canada Life of the Abbey Life Investment Company, constitute an agreement between undertakings. The Authority believes that in the light of the amendments made to clause 8.2 in the letter of 15 March 1994, the restrictions in the agreement are no more than is necessary to secure the transfer of the goodwill of the business. The agreement of 20 March 1992 for the acquisition of the Abbey Life Investment Company by Canada Life, between Abbey Life (Ireland) Holdings Limited, Lloyds Abbey Life plc and the Canada Life Assurance Company of Great Britain and Ireland Limited, as amended by the letter of 15 March 1994, does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

18. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement of 20 March 1992 for the acquisition of the Abbey Life Investment Company by Canada Life, between Abbey Life (Ireland) Holdings Limited, Lloyds Abbey Life plc and the Canada Life Assurance Company of Great Britain and Ireland Limited, (notification no. CA/59/93), notified on 17 September 1993 under Section 7, and amended by the letter of 15 March 1994, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

5 May 1994.