CELEX: 32015M7478
Language: en
Date: 2015-03-13 00:00:00
Title: Commission Decision of 13/03/2015 declaring a concentration to be compatible with the common market (Case No COMP/M.7478 - AVIVA / FRIENDS LIFE / TENET) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 13.3.2015
C(2015) 1791 final

|To the notifying party:                                                |                                                                       |

Dear Sir/Madam,

Subject:    Case M.7478 - AVIVA/ FRIENDS LIFE/ TENET
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1] and Article 57 of the Agreement  on  the  European  Economic
Area[2]

    1) On 6 February 2015, the European Commission received notification of a  proposed  concentration  pursuant  to  Article  4  of  the  Merger
       Regulation by which Aviva plc (Aviva, UK) will acquire sole control over Friends Life Ltd (Friends Life, UK) and Tenet Group  Ltd  (Tenet,
       UK) within the meaning of Article 3(1)(b) of the Merger regulation. Aviva, Friends Life and Tenet are collectively  referred  to  as  "the
       Parties".

       THE PARTIES AND THE OPERATION

    2) Aviva provides a broad range of insurance, savings and investment products in 17 countries, principally in the UK, France and  Canada  and
       elsewhere in Europe and Asia. Aviva also provides reinsurance and asset management services.

    3) Friends Life provides pension, investment and insurance products and services. Friends Life operates from the UK, Germany, the United Arab
       Emirates, Singapore, Hong Kong and the Isle of Man.

    4) Tenet distributes investment products, protection products, non-life insurance and mortgages. Tenet also provides adviser support services
       in the investment, non-investment and mortgage market. Tenet is active in the UK.  Tenet  is  currently  not  controlled  by  any  of  its
       shareholders.

    5) The proposed transaction consists of the acquisition of the entire issued and to be issued ordinary  share  capital  of  Friends  Life  by
       Aviva. The transaction will also lead to Aviva acquiring [20-30]% shares in Tenet, currently owned by Friends  Life,  which  will  add  to
       Aviva's [20-30]% stake. As a result, Aviva will hold (directly and indirectly through Friends Life) [40-50]% of shares in Tenet. Two other
       shareholders hold less than 25% of Tenet's shares each, while under the shareholders agreement, adopting  strategic  commercial  decisions
       requires a 60% majority. Consequently, post-transaction, Aviva with the shareholding of [40-50]% will be able to veto strategic commercial
       decisions regarding Tenet. Therefore, Aviva will acquire negative sole control over Tenet.

    6) Consequently, the proposed transaction constitutes an acquisition of sole control by Aviva over Friends Life and Tenet,  and  therefore  a
       concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       EU DIMENSION

    7) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[3]  (Aviva:  EUR  28,163  million,
       Friends Life EUR 6,999 million, Tenet: EUR 138 million). At least two of them have an EU-wide  turnover  in  excess  of  EUR  250  million
       (Aviva: EUR […] million, Friends Life EUR […] million), but they do not achieve more than two-thirds of their aggregate  EU-wide  turnover
       within one and the same Member State.

    8) Therefore, the proposed transaction has an EU dimension within the meaning of Article 1(2) of the Merger Regulation.

       RELEVANT MARKETS

1 Introduction

    9) The proposed transaction gives rise to horizontal overlaps in relation to the supply of insurance in France,  Ireland,  Italy,  Lithuania,
       Poland, Spain and the UK and in insurance distribution in the UK. However, only the UK life insurance market, namely  the  overall  market
       for the supply of protection products and its two sub-segments (for individual and for group customers) constitute affected markets within
       the meaning of the Merger Regulation.

   10) The transaction also leads to the following vertical links, none of which leads to a vertically affected market:

         – between the downstream insurance activities of Aviva and Friends Life and the upstream  asset  management  and  reinsurance  services
           offered by Aviva, and

         – between the upstream insurance activities of Aviva and Friends Life and the downstream  insurance  distribution  offered  by  Friends
           Life and Tenet.

    1) For the sake of completeness, it should be noted that Parties' activities do not overlap in any non-life insurance or reinsurance market.

2 Product markets

   11) In previous decisions relating to the insurance sector, the Commission distinguished between three large  categories  of  insurance:  life
       insurance, non-life insurance and reinsurance.[4]

   12) As regards the life insurance market, the Commission considered segmenting the market according to the risk covered/service provided  into
       (i) pure protection products, (ii) savings and investment products and (iii) pension products.[5] Additionally, the  Commission  segmented
       the market according to the category of customers to  which  the  products  are  addressed,  namely  between  life  insurance  offered  to
       individuals and to group customers.[6] The Commission has so far left the exact market definition open.

   13) The Notifying Party does not contest the previous assessment of the Commission. In any event the exact  product  market  segmentation  for
       life insurance market can be left open in this case as the transaction does not raise competition  concerns  under  any  plausible  market
       definition.

i. Subdivision according to the risk covered/service provided

   14) Generally, the market investigation in this case supports the above distinction between the three categories of  life  insurance  products
       into pure protection products, savings and investment products and pension products. Majority of life insurance providers  have  different
       dedicated teams of staff for each of the three categories and almost all of them recognise that these different products  serve  different
       categories of customers. The respondents widely confirm that different regulatory and/or tax treatment apply to different  life  insurance
       products, as described above.

   15) Furthermore, the market investigation revealed that some life insurance providers tend to specialise in a given category of products,  for
       example pension products or protection products. This is also to a certain extent evidenced by the  diverse  market  shares  of  the  main
       players in these three broad segments, for example important market share of Unum in group protection products and  much  lower  in  other
       products, or Aviva’s low market share in savings and investment products, as compared protection products.

      Pure protection products

   16) The Commission previously considered that the pure protection insurance products are products, where in return for a regular  premium  the
       insurer agrees to pay a lump sum on a certain specified event such as death or  serious  illness.  These  type  of  policies  may  include
       mortgage protection policies; term life insurance (i.e. protection for a defined period, where  the  policyholder  chooses  the  cash  sum
       required covering their families in the event of death or the expiration of the policy); whole life policies (which pay on  death  of  the
       insured); and critical illness cover.[7]

   17) Although several products exist in within the category of pure protection products which are  not  substitutable  from  demand  side,  the
       market investigation provided indications that there is no need to further sub-segment pure protection products as there is a high  degree
       of supply-side substitutability in a sense that an insurer offering one pure protection product can easily start offering any  other  type
       of pure protection products.

      Pension products

   18) The Commission previously considered that life insurance products which allow the accumulation of funds for the purposes of the  provision
       of retirement income as well as products which provide such retirement income to the beneficiaries  should  be  together  referred  to  as
       pension products.[8] The products in the first category tend to be called  'accumulation'  products  while  the  products  in  the  second
       category are called 'decumulation' products.

   19) Within life insurance pension products both Aviva and Friends  Life  offer  both  the  accumulation  and  the  decumulation  products  for
       individuals and for group customers.

   20) The results of the market investigation indicate that generally in the UK pension products encompass accumulation products (where one  can
       distinguish defined benefit and defined contribution pension types) and the decumulation products (mainly annuities and income  drawdown).
       The respondents explained that annuities in general mean drawing a guaranteed income for the rest of life of person insured  while  income
       drawdown offers drawing an income, but retaining the money invested with a view to further growth.

   21) Based on the market investigation there is no need to further sub-segment pension products since  vast  majority  of  insurance  providers
       offer both accumulation and decumulation products, and those who offer only one of these two categories, indicated that this is  based  on
       their commercial choice, which confirms high supply side substitutability.

      Savings and investment products

   22) Products in this category provide a wealth accumulation service to consumers usually offering tax advantages.  They  may  include  tracker
       funds (where the investment return over a specified period is based on the performance of one or more stock  market  indexes),  guaranteed
       funds (providing a guaranteed return over a specified period), managed funds (pooled funds investing in a mix of assets such as  equities,
       securities and properties), personal investment plans, personal equity plans, etc. In general,  the  products  within  this  category  are
       insurance product with an investment element and they differ according to the mechanism used to generate returns.[9] As explained by  some
       respondents to the market investigation, in the UK one can also distinguish the on-shore investment bonds and  the  off-shore  bonds,  the
       latter investing into funds outside the UK.

   23) The replies to the market investigation indicate that savings and investment life insurance products encompass  insurance  products  which
       enable the accumulation of wealth in a tax efficient manner. At the same time the market investigation provided indications that there  is
       no need to further sub-segment savings and investment products, since most insurance providers are able to offer wide range of savings and
       investment products as a result of which there is a high degree of supply-side substitutability.

ii. Subdivision according to the nature of the customer: individual vs. group

   24) The Commission also considered a distinction of life insurance products based on customer type, segmenting between individuals and  groups
       (group typically refers to the provision of insurance products by corporations  to  their  employees).[10]  Consequently,  the  Commission
       considered that each of the life insurance markets i.e. pure protection products,  pension  products  as  well  as  investment-based  life
       insurance products can be offered on both individual and group basis.

   25) The results of the market investigation in this case support this distinction between individual and group customers. Almost  all  of  the
       life insurance providers, who offer both individual and group life insurance products, apply  for  them  different  strategies,  different
       marketing teams and offer different products. The fact that some life insurance providers (for  example  Unum)  and  some  life  insurance
       distributors choose to target mainly one category of customers  (either  individual  or  group)  also  supports  the  distinction  between
       individual and group life insurance products.

iii. Conclusion

   26) The market investigation overall confirmed that the life insurance products can be segmented based on the service provided  into  i)  pure
       protection products, ii) savings and investment products and iii) pension products and based on the customer base  into  i)  products  for
       individuals and ii) products for group customers. In any event, in this case, the question of whether the life insurance market  ought  to
       be segmented taking into account the different risks covered and/or the nature of the customer (or possibly even further) can be left open
       since the transaction does not give rise to serious doubts as to its compatibility with  the  internal  market  in  any  plausible  market
       segment.

3 Geographic market

   27) The Commission in its previous decisions considered the geographic market for life insurance to be national in scope due to the  following
       elements: (i) existence of national distribution  channels,  (ii)  national  regulatory  framework  and  fiscal  regimes,  (iii)  national
       established brands. However, the exact product market definition has been left open.[11]

   28) The activities of the Parties are concentrated in the UK. The Notifying Party does not contest the previous assessment of  the  Commission
       as regards the  geographic market definition of the life insurance market.

   29) The market investigation in this case did not provide any indications that  the  geographic  market  should  be  wider  or  narrower  than
       national. In any event, the geographic market definition can be left open for the purpose of this decision, since the transaction does not
       give rise to serious doubts as to its compatibility with the internal market irrespective of the exact geographic market definition.

       COMPETITIVE ASSESSMENT

   30) The transaction would give rise to affected markets in relation to: i) the overall provision of pure protection products in  the  UK,  ii)
       the provision of group pure protection products in the UK and iii) the provision of individual pure protection products in the UK.

   Table 1. Summary of Market Share Information, 2013 – the UK:

|Category                    |Pure protection products       |Pure protection products                        |
|                            |overall                        |                                                |
|                            |                               |Individual            |Group                   |
|Aviva                       |[10-20]%                       |[10-20]%              |[10-20]%                |
|Friends Life                |[5-10]%                        |[5-10]%               |[5-10]%                 |
|Combined                    |[20-30]%                       |[20-30]%              |[20-30]%                |
|Legal & General             |[20-30]%                       |[20-30]%              |[10-20]%                |
|Unum                        |[10-20]%                       |Na                    |[20-30]%                |
|Zurich                      |[5-10]%                        |[5-10]%               |[5-10]%                 |
|Scottish Widows             |[5-10]%                        |[5-10]%               |Na                      |
|Royal London Group          |[0-5]%                         |[5-10]%               |Na                      |
|Prudential                  |[0-5]%                         |[5-10]%               |Na                      |
|Canada Life                 |[0-5]%                         |Na                    |[20-30]%                |
|Ageas                       |[0-5]%                         |[0-5]%                |Na                      |
|Liverpool Victoria          |[0-5]%                         |[0-5]%                |Na                      |
|Aegon                       |Na                             |[0-5]%                |Na                      |

            Source: Form CO.

   31) The combined market shares of the Parties just exceed [20-30]% in all affected markets.

   32) As regards the individual protection products the combined entity will continue facing a  number  of  strong  competitors,  in  particular
       Legal & General (UK based business providing insurance services and one of the largest Europe’s asset managers), holding a market share of
       [20-30]% and two other strong players, namely Zurich (one of world’s largest insurance groups) and Scottish Widows  (part  of  the  Lloyds
       Banking Group), who have around [5-10]% markets share each. In addition a number of smaller competitors with markets shares between  [0-5]
       and [5-10]% will remain present.

   33) As regards the group protection products, post transaction the UK market will be characterized by the presence of four insurance providers
       with approximately [20-30]% market share each. Apart from the Parties with the market share of [20-30]%, life insurance  group  protection
       products will be offered by Canada Life, the market leader with [20-30]% market share, Unum with [20-30]% market share and Legal & General
       with [10-20]% market share.

   34) In the overall  protection  products  market  the  combined  entity  will  face  competition  from  a  number  of  competitors,  including
       Legal & General with the market share of [20-30]%, and Unum and Zurich with the market share of [10-20]% each.

   35) Notifying Party argues that the activities of Aviva and Friends Life are largely complementary, since Aviva focuses on lower value, higher
       volume products such as mortgage life insurance and term life insurance,  while  Friends  Life  focuses  on  higher  value,  lower  volume
       products, such as income protection. Therefore, according to the Notifying Party, Aviva and Friends Life would not be considered  as  each
       other’s closest competitors.

   36) The market investigation broadly confirmed that Aviva tends to offer simpler less expensive products,  while  Friends  Life  targets  more
       upmarket customers with better quality and more complex offerings. Furthermore, many of the replies suggested that Aviva and Friends  Life
       are not the closest competitors in life insurance in the UK, to the contrary, the respondents highlighted different strengths of Aviva and
       Friends Life. In particular, Aviva is considered to have a strong brand, very good distribution network and large scale (while is supposed
       to be weak in specialisation), while Friends Life is considered to be competitive in offering product quality and range,  mainly  in  some
       protection products and group pension products. The replies to the market investigation suggest that  for  example  Legal & General  is  a
       closer competitor of Aviva than Friends Life.

   37) In addition, the Notifying Party argues that in the UK there are no  practical,  financial,  legal  or  other  barriers  to  switching  an
       insurance provider. Individual customers are typically not tied to long term contracts and  they  regularly  switch  insurance  providers.
       Furthermore, the growth of online distributors and the presence of intermediaries such as Independent Financial Advisors who  look  across
       the market to offer individual customers the best rates have increased the ability and incentive  for  customer  to  switch  providers  in
       response to price considerations.

   38) The market investigation broadly confirmed that switching for individual customers is easy, in particular as regards the pension products.
       As regards contracts for group protection, products are reviewed on a regular basis, mostly every two to three years. Moreover,  there  is
       typically no surrender value or redemption penalty when stopping a policy and changing to another provider. In many cases, third  parties,
       such as brokers or Risk/Specialist Employment Benefit Consultants look across the market in order to present  the  best  deals  for  their
       clients (typically corporations looking to provide group protection products for their employees).

   39) Finally, the Notifying Party submits that the barriers to enter the insurance market in the UK are low.  Set  up  cost  for  a  protection
       provider in another Member State to enter the UK market or for an insurance provider to start offering protection  products  are  low,  in
       particular, a lot of services, such as reinsurance, technological infrastructure or administration services. Low  barriers  to  entry  are
       also demonstrated by the recent successful entries by Ageas (entry in 2010) and Beagle Street (2012, first online only  provider  of  life
       insurance in the UK).

   40) While the market investigation provided indications that for complete de novo entrants regulatory and capital requirements are  considered
       as the main challenges, followed by the low profit margins combined with the lack of immediate returns and the necessity  to  build  scale
       and market credibility, the market investigation confirmed the existence of supply-side substitutability between  various  life  insurance
       products, so for companies present in one life insurance segment it would be relatively easy to penetrate other segments. In addition, the
       fact that relatively new players such as Zurich, MetLife and Ellipse were able to grow further indicates that the  barriers  to  entry  in
       this market are not insurmountable.

   41) In general, the Notifying Party submits that the market for the provision of protection products in the UK  is  characterized  by  intense
       competition, and customers hold generally bargaining power, in particular larger group customers. This was confirmed by the results of the
       market investigation where market participants consider that the life insurance market is competitive in the UK. In addition,  the  market
       investigation did not reveal any substantiated concerns about the impact of the transaction on the UK life insurance market.

   42) Against this background, the Commission concludes that the transaction does not give rise to serious doubts as to its  compatibility  with
       the internal market.

       CONCLUSION

   43) For the above reasons, the European Commission has decided not to oppose the notified operation and to  declare  it  compatible  with  the
       internal market and with the EEA Agreement. This decision is adopted in application of  Article  6(1)(b)  of  the  Merger  Regulation  and
       Article 57 of the EEA Agreement.

For the Commission
(Signed)
Violeta BULC
Member of the Commission

-----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
('TFEU') has introduced certain changes, such as the replacement of 'Community'  by  'Union'  and  'common  market'  by  'internal  market'.  The
terminology of the TFEU will be used throughout this decision.

[2]   OJ L 1, 3.1.1994, p.3 ("the EEA Agreement").

[3]   Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission Consolidated Jurisdictional  Notice  (OJ  C95,
16.04.2008, p1).

[4]   See Case No COMP/M.2400 Dexia/Artesia; Case No. COMP/M.2225, Fortis/ASR; Case No. COMP/M.1989, Winterthur/Colonial;  Case  No  COMP/M.1886,
CGU/Norwich Union; Case No COMP/M.1910, Meritanordbanken/Unidanmark; Case  No  COMP/M.1816,  Churchill  Insurance  Group/Hig  Holdings;  Case  No
COMP/M.1777, CGU/Hibernian, COMP/M.6883 Canada Life/Irish Life.

[5]   Case No. COMP/M.4701 Generali/PPF Insurance business. Case No. COMP/M.6521 – Talanx International Meiji Yasuda Life insurance/Warta.

[6]   Case No. COMP/M.5075 Vienna Insurance Group/EBV para 22; Case No COMP/M.4701 Generali/PPF Insurance Bbusiness, para 20.

[7]   Case COMP/M.6883 Canada Life/Irish Life, para 12.

[8]   Case COMP/M.6883 Canada Life/Irish Life, para 12.

[9]   Case COMP/M.6883 Canada Life/Irish Life, para 16.

[10]  Case COMP/M.6846 Aegon/Santander/Santander Vida/ Santander Generales, para 21.

[11]  Case COMP/M.6883 Canada Life/Irish Life, para 19.

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                                                                  PUBLIC VERSION

 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

                                                                 MERGER PROCEDURE