COMMISSION DECISION of 30/06/1995 declaring a concentration to be compatible with the common market (Case No IV/M.600 - Employers Reins. Corp. / Frankona 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.600 EMPLOYERS REINSURANCE CORPORATION / FRANKONA RUECKVERSICHERUNGS AG

<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 Frankona Rueckversicherungs AG (Frankona 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> Frankona Rueck, incorporated in Germany, is ultimately controlled by GerlingKonzern VersicherungsBeteiligungs AG (GerlingKonzern), the head of the Gerling insurance group. Its principal activity is the transaction of reinsurance business.

II<ind> THE OPERATION

5<ind> Employers Reinsurance will acquire the 76 per cent shareholding in Frankona Rueck at present held by the Gerling insurance group and other shareholders. It will thus acquire sole control of Frankona Rueck. Employers Reinsurance intends if possible to obtain further shares in Frankona 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.]. Frankona 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. 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 the nongroup reinsurance business of Aachener RueckversicherungsGesellschaft AG (Aachener Rueck). [IV/M.601 Employers Reinsurance Corporation/Aachener RueckversicherungsGesellschaft 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 per cent.]) and General Re ([Deleted; business secret: 05 per cent.] [Including Koelnische Rueck, which General Re acquired in 1994 (case IV/M.491 General Re/Koelnische Rueck).]). General Electric occupied the fourth position ([Deleted; business secret: 05 per cent.]), Frankona Rueck the seventh position ([Deleted; business secret: 05 per cent.]) and the business acquired by Employers Reinsurance from Aachener Rueck the eighteenth position (([Deleted; business secret: 05 per cent.]). 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 ([Deleted; business secret: 05 per cent.]). The remainder of the market is highly fragmented, only five suppliers having a share above [Deleted; business secret: 05 per cent.]. 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 [Deleted; business secret: 05 per cent.], Frankona Rueck [Deleted; business secret: 05 per cent.] and the business acquired by Employers Reinsurance from Aachener Rueck [Deleted; business secret: 05 per cent.]. Their shares for nonlife reinsurance were General Electric [Deleted; business secret: 05 per cent.], Frankona Rueck [Deleted; business secret: 05 per cent.] and the business acquired by Employers Reinsurance from Aachener Rueck [Deleted; business secret: 05 per cent.]. 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 Aachener Rueck, does not create or enhance a dominant position.

VI<ind> CONCLUSION

16<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.

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.a

<tab> For the Commission,