COMMISSION DECISION of 30/06/1995 declaring a concentration to be compatible with the common market (Case No IV/M.601 - Employers Reins. Corp. / Aachener Rueck AG) according to Council Regulation (EEC) No 4064/89

(Only the English text is authentic).

The paper version of the decision is available through the sales offices of the Office of Official Publications of the European Communities

PUBLIC VERSION

MERGER PROCEDURE

ARTICLE 6(1)(b) DECISION

To the notifying parties

Dear Sirs,

Subject:<ind> Case No.IV/M.601EMPLOYERS REINSURANCE CORPORATION / AACHENER RUECKVERSICHERUNGS GESELLSCHAFT AG

<ind> <ind> Notification of 24 May 1995 pursuant to Council Regulation (EC) No. 4064/89

1<ind> On 24 May 1995 Employers Reinsurance Corporation (Employers Reinsurance) notified to the Commission its intended acquisition of the nongroup reinsurance business of Aachener RueckversicherungsGesellschaft AG (Aachener Rueck).

2<ind> After examination of the notification, the Commission has concluded that the notified operation falls within the scope of application of Council Regulation No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

I<ind> THE PARTIES

3<ind> Employers Reinsurance is incorporated in the United States of America. Its ultimate parent is the General Electric Company, the head of a large and diversified industrial group. Its principal activity is the transaction of reinsurance business. Other companies in the General Electric group also supply reinsurance.

4<ind> Aachener Rueck, incorporated in Germany, is ultimately controlled by Aachener und Muenchener Beteiligungs AG. Its principal activity is the transaction of reinsurance business.

II<ind> THE OPERATION

5<ind> Aachener Rueck, which conducts both intragroup and nongroup reinsurance activities, will transfer to Laurensberg Beteiligungs AG (Laurensberg), one of its subsidiaries, its nongroup reinsurance activities and the shares in certain other subsidiary and associated companies engaged in nongroup reinsurance business. The transfer will result in the acquisition by Laurensberg of minimal intragroup reinsurance as well. Laurensberg will sell to ERC three of its subsidiaries Aachen Reinsurance Intermediaries Inc Atlanta (USA), Aachen Holdings Inc Atlanta (USA) and Applewood plc (United Kingdom). None of these companies supplies reinsurance. Aachener Rueck will sell Laurensberg to ERC. Laurensberg will acquire the name Aachener Rueck.

6<ind> The operation accordingly constitutes a concentration within the meaning of article 3(1)b of the Regulation.

III<ind> CONCENTRATION OF COMMUNITY DIMENSION

7<ind> General Electric Company has a Communitywide turnover [Turnover in paragraph 7 is calculated according to Article 5(3)(b) of the Regulation.] in excess of [Deleted; business secret.]. The business which it will acquire from Aachener Rueck has a Communitywide turnover of [Deleted; business secret.]. Accordingly their combined aggregate worldwide turnover exceeds ECU 5000m and each of them has a Communitywide turnover in excess of ECU 250m But they do not achieve more than twothirds of their aggregate Communitywide turnover within one and the same Member State.

8<ind> The operation therefore has a Community dimension within the meaning of Article 1(2) of the Regulation.

IV<ind> COMPATIBILITY WITH THE COMMON MARKET

a)<tab> Introduction

9<ind> Simultaneously with its notification of this operation Employers Reinsurance notified to the Commission its proposed acquisition of Frankona Rueckversicherungs AG (Frankona Rueck), another reinsurer, from the Gerling insurance group [IV/M.600 Employers Reinsurance Corporation/Frankona Rueckversicherungs AG]. The assessment made in this decision takes into account the effect of that proposed acquisition.

b)<tab> Relevant product market

10<ind> Reinsurance is a particular form of insurance. Its purpose is to spread risks between insurers. The reinsurer accepts either the whole or part of the direct risk insured by another insurer and thereby provides the primary insurer with the ability to increase the amount of insurance which he underwrites and to diversify his risk over time and geographic area. Reinsurance is traded between industry specialists, it is written only with other insurance companies, no premium income is derived from reinsurance sales to the public and no channels for retail distribution are required. For these reasons the Commission has concluded in earlier decisions [IV/M.433 ERC/NRG Victory; IV/M.491 General Re/Koelnische Re] that it is necessary to distinguish between reinsurance and direct insurance.

11<ind> Reinsurance can be divided into two sectors life and nonlife. The nonlife sector can be further subdivided into the following principal categories liability, motor, accident/sickness, fire, marine, aviation and other. Although some reinsurers specialise in particular types of cover, there is no reason apart from expertise why a reinsurer should not readily enter the market in any sector; there is thus a high level of supplyside substitutability. Since even on the narrowest market definition no competition difficulties arise the question whether the reinsurance market should be subdivided can be left open.

c)<tab> Relevant geographic market

12<ind> Since reinsurance products are traded between industry specialists and not sold to the general public, controls by national authorities over the conduct of pure reinsurance tend to be much less extensive than those over direct insurance. This, together with the fact that reinsurance business can be conducted without the necessity of maintaining a large distribution force, tends to indicate that the market has a global character. The existence of a world market is also evidenced by the presence of international broking firms which mediate reinsurance on a worldwide scale. Within the European Union freedom of establishment to provide reinsurance services was enacted by Directive EEC 225/64. The Commission has in earlier decisions [IV/M.433 ERC/NRG Victory; IV/M.491 General Re/Koelnische Re] considered the reinsurance market to be international or global.

d)<tab> Competitive assessment

13<ind> In 1994 the three largest reinsurers in the world were Munich Re ([Deleted; business secret: 510 per cent.] of the market), Swiss Re ([Deleted; business secret: 510%.]) and General Re ([ 05%.] [Including Koelnische Rueck, which General Re acquired in 1994 (case IV/M.491 General Re/Koelnische Rueck).]). General Electric occupied the fourth position ([05%]), Frankona Rueck the seventh position ([05%]) and the business acquired by Employers Reinsurance from Aachener Rueck the eighteenth position (([05%]). The effect of this operation and of the acquisition by Employers Reinsurance of Aachener Rueck is that General Electric displaces General Re from the third position ([05%]). The remainder of the market is highly fragmented, only five suppliers having a share above [05%]. As this indicates, barriers to entry are low.

14<ind> In 1994 the world market shares of the parties to the two operations for life (including heath and disability) reinsurance were General Electric [05%], Frankona Rueck [05%] and the business acquired by Employers Reinsurance from Aachener Rueck [05%]. Their shares for nonlife reinsurance were General Electric [05%], Frankona Rueck [05%] and the business acquired by Employers Reinsurance from Aachener Rueck [05%]. In none of the categories liability, motor, accident/sickness, fire and other did their combined market shares exceed [Deleted; business secret: 1015 per cent.]. Frankona has established a strong reputation as a supplier of aviation [insurance] [Correction: read reinsurance]. However in both marine and aviation a comparison of the premiums received by the parties to the two operations in 1994 indicates that the increase in market shares resulting from the operation is not significant.

15<ind> Accordingly the operation, even when it is considered together with the acquisition by Employers Reinsurance of Frankona Rueck, does not create or enhance a dominant position.

V<ind> ANCILLARY RESTRAINTS

16<ind> Employers Reinsurance has requested that certain restrictions be considered as ancillary to the concentration.

<ind> <ind> Aachener Rueck agrees that pending completion it will conduct the business which it transfers to Employers Reinsurance only in the normal and ordinary course of business.

<ind> <ind> Aachener Rueck agrees not to use certain names containing the word "Aachen" or "Aachener", similar names and trade marks or designs currently used by the business transferred.

<ind> <ind> Aachener Rueck agrees that it will not for 10 years disclose or use business secrets relating exclusively to the business transferred.

<ind> <ind> Subject to standard exceptions as to investment Aachener Rueck and Aachener und Muenchener Beteiligungs agree for [Deleted; business secret: 05 years] not to compete with the business transferred.

<ind> <ind> Laurensberg grants to Aachener Rueck intellectual property licences necessary for Aachener Rueck to conduct the intragroup reinsurance business which it retains.

<ind> <ind> Aachener Rueck agrees to offer exclusively to Laurensberg at original conditions between 1996 and 2002 retrocession contracts in respect of intragroup business with Aachener und Muenchener Beteiligungs. These contracts form part of the reinsurance business which Employers Reinsurance acquire under the operation.

17<ind> In so far as these provisions amount to restrictions they are necessary to guarantee the transfer to Employers Reinsurance of the full value of the assets which they purchase or the preservation for Aachener Rueck of the full value of the assets which it retains or are otherwise directly related to and necessary for the successful implementation of the concentration. They can therefore be treated as ancillary to the concentration.

VI<ind> CONCLUSION

18<ind> For the foregoing reasons, the proposed concentration does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

<ind> For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the functioning of the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation No. 4064/89.

<tab> For the Commission,