CELEX: 31994M0491
Language: en
Date: 1994-10-24 00:00:00
Title: COMMISSION DECISION of 24/10/1994 declaring a concentration to be compatible with the common market (Case No IV/M.491 - General RE / Kölnische RE) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31994M0491

COMMISSION DECISION of 24/10/1994 declaring a concentration to be compatible with the common market (Case No IV/M.491 - General RE / Kölnische RE) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 312 , 09/11/1994 P. 0005

 COMMISSION DECISION of 24/10/1994 declaring a concentration to be compatible with the  common market (Case No IV/M.491 - General RE / Koelnische RE) 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 Registered with advice of delivery To the notifying parties Dear Sirs, Subject :<tab> Case IV/M.491 - GENERAL RE/KOELNISCHE RE <tab> <tab> Notification of 21.9.94 pursuant to Article 4 of Council Regulation n  4064/89 1.<ind> On 21st September 1994,  General Re Corporation ("GR") and CKAG Colonia Konzern AG  ("CKAG") notified an operation whereby GR will establish indirect sole control over Koelnische  Rueckversicherungs-Gesellschaft AG ("KR"), a subsidiary of the UAP Group ("UAP") controlled  through CKAG. 2.<ind> After examination of the notification, the Commission has concluded that the notified  operation falls within the scope 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 AND THE OPERATION 3.<ind> <ind> GR is an American corporation which provides reinsurance, insurance and related  services mainly in the United States of America and in more than thirty other countries throughout  the world. CKAG is a wholly owned subsidiary of UAP, a composite insurer engaged in all types of  insurance, reinsurance and, to a minor extent, banking and financial services. 4.<ind> GR intends to establish indirect single control over KR.  For this purpose, GR and CKAG  have agreed to create a new company which will hold all of CKAG's in KR (75% of the voting  shares and 29.83% of the non-voting preference shares). CKAG is transferring its stake at book  value and taking in exchange 49.9% stake in the new company while GR will contribute cash and  will take a 50.1% stake. The remaining cash contributed by GR will be attributed to a capital  reserve. The new company will manage and invest the funds made available by GR's capital  contribution. A guaranteed dividend is to be paid to CKAG.  A call option in favour of GR to  be  exercised between 2002 and 2004 exists. If GR chooses not to exercise its call option before it  expires, CKAG in turn  will have a call option to be exercised between 2004 and 2007. II.<ind> COMMUNITY DIMENSION 5.<ind> The undertakings concerned have a combined aggregate worldwide turnover in excess of  5.000 million ECU. Both GR and KR have a Community-wide turnover in excess of 250 million  ECU but they do not both achieve more than two-thirds of their aggregate Community-wide turnover  within one and the same Member State. The notified operation therefore has a Community  dimension. III.<ind> NATURE OF THE OPERATION      6.<ind> The decision making process in the new company will be carried out by a supervisory board  of three members (two appointed by GR, one appointed by CKAG) and a board of management of  3/4 members (two to be nominated by GR and one by CKAG). If four managing directors are  appointed, the fourth director will be nominated jointly by GR and CKAG. The chairman of the  board of management will be nominated by GR and will have a casting vote.  In the shareholders'  meetings GR will have 50.1% of the voting rights while CKAG will have 49.9%. Resolutions will be  passed by majority. Unanimity or qualified majority (75% vote) is only required for the management  of funds and for matters not going beyond the  protection of shareholders rights. 7.<ind> The agreement will confer sole control of the new company on GR even though the  management and investment of funds available will be jointly controlled by GR and CKAG. 8.<ind> KR is a German corporation (Aktiengesellschaft - AG) governed by its board of   management appointed by the company's supervisory board. Four members of the supervisory board  are appointed by the staff and eight by the shareholders' meeting. The parties have agreed that GR  will  nominate  six and CKAG two members each. The chairman, appointed by GR will have a  casting vote. [deleted business secret]. GR will exert sole control over KR. 9.<ind> In view of the above, the notified operation constitutes a concentration within the meaning  of Article 3(1)b of the Regulation. IV<tab> RELEVANT MARKETS <tab> A)  Relevant product market 10.<ind> The business of reinsurance represents a specialist form of insurance.  The purpose of  reinsurance is to spread the risks between insurers.  The reinsurer accepts either the whole or part of  the risk insured by another insurer and thereby provides the primary insurer with the ability to  increase the amount of insurance underwritten and to diversify risk over time and geographic area.   Thus, 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 therefore required.  Accordingly reinsurance must be considered distinct from  direct insurance. <tab> B) Relevant geographic market 11.<ind> Since reinsurance products are traded between industry specialists and not sold to the  general public, the controls by national authorities over the conduct of pure reinsurance tend to be  much less extensive than in direct insurance.  The fact that the reinsurance business can be run  without the necessity to maintain a large distribution force also tends  to indicate the global character  of the market.  The existence of a world market is also evidenced by the presence of international  broker firms which mediate reinsurance volumes on a worldwide scale. V<ind> ASSESSMENT 12.<ind> GR provides predominantly non-life reinsurance to its clients.  Less than 2% of its EEA  premium is derived from life insurance.  KR provides both life and non-life reinsurance.  Exact  statistics on reinsurance world market shares are not available.  KR and GR are currently ranked  sixth and seventh respectively amongst the world's largest reinsurers, and their combined world  market share will be less than the individual shares of the two largest reinsurers, Munich Re and  Swiss Re, and in any case, well below 10 %.  In view of this, the operation does not raise serious  doubts about its compatibility with the common market. VI<ind> ANCILLARY RESTRAINTS 13.<ind> In the joint venture agreement, GR and CKAG have included a non-competition clause  which stipulates that CKAG will not compete with KR during the period of time that CKAG  remains a shareholder in the J.V. plus an additional five years which implies a minimum period of  twelve years.  CKAG remains free to hold limited participation in other reinsurance companies and  UAP's reinsurance activities are not in any way restricted. 14.<ind> This clause is intended to guarantee the transfer to GR of the full value of the assets  transferred; these include both the technical know-how required to operate a reinsurance business,  which includes sophisticated actuarial techniques and also the goodwill, which in the reinsurance  sector includes the professional reputation of the reinsurance company and the loyalty of its  customers. 15.<ind> As CKAG would be in a position to start a new entity which could run a professional  reinsurance business like KR, GR must be allowed to safeguard its investment and therefore the non  competition clause can be seen as a restriction directly related and necessary to the implementation  of the concentration.  However a period of five years is recognised as appropriate when the transfer  of assets includes goodwill and know-how, and the present decision covers the non-competition  clause for a maximum period of five years. 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