CELEX: 32019M9432
Language: en
Date: 2019-09-26 00:00:00
Title: Commission Decision of 26/09/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9432 - ALLIANZ HOLDINGS / LEGAL AND GENERAL INSURANCE) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 26.09.2019
                                                                C(2019) 7027 final
                                                                                  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                                                                 omitted has been replaced by ranges of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.
                                                                To the notifying party
Subject:            Case M.9432 – Allianz Holdings/Legal and General Insurance
                    Commission decision pursuant to Article 6(1)(b) of Council Regulation
                    No 139/20041 and Article 57 of the Agreement on the European Economic
                    Area2
Dear Sir or Madam,
(1)       On 22 August 2019, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Allianz
          Holdings plc (“Allianz” or the “Notifying Party”, the United Kingdom), acquires
          sole control over Legal and General Insurance Limited (“L&G Insurance” or the
          “Target”, the United Kingdom) by way of purchase of shares.3 Allianz and L&G
          Insurance are hereinafter collectively referred to as the “Parties”.
∗    Handling instructions for SENSITIVE information are given at https://europa.eu/!dg43PX.
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    Publication in the Official Journal of the European Union No C 291, 29.08.2019, p. 8.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.   THE PARTIES
(2)     Allianz is part of the Allianz group, a global financial services provider
        headquartered in […]*, Germany, and active predominantly in relation to life
        insurance products and non-life insurance products (including pet insurance), as well
        as asset management;
(3)     L&G Insurance is the general insurance business of the Legal and General Group plc
        and provides non-life insurance products (including pet insurance) in the UK.
2.   THE CONCENTRATION
(4)     On 31 May 2019, Legal and General Assurance Society Limited (which is wholly
        owned by Legal and General Group plc) entered into a share purchase agreement
        with Allianz pursuant to which Allianz agreed to acquire 100% of the shares of the
        Target (the “Transaction”).
(5)     The Transaction therefore constitutes a concentration within the meaning of
        Article 3(1)(b) of the Merger Regulation.
3.   EU DIMENSION
(6)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million (Allianz: EUR 132 483 million, L&G Insurance:
        EUR […] million)4. Each of them has an EU-wide turnover in excess of
        EUR 250 million (Allianz: EUR […] million, L&G Insurance: EUR […] million),
        but they do not achieve more than two-thirds of their aggregate EU-wide turnover
        within one and the same Member State. The notified operation therefore has an EU
        dimension pursuant to Article 1(2) of the Merger Regulation.
4.   MARKET DEFINITION
(7)     The Transaction gives rise to limited horizontal overlaps and vertical links, in the
        UK, in relation to the provision and distribution of non-life insurance, and
        reinsurance.5 In previous decisions relating to the insurance sector, the Commission
        distinguished three broad categories of insurance products: life insurance, non-life
        insurance, and reinsurance.6 The Commission also considered a distinct market for
        insurance distribution.7
*   Should read “Munich”.
4   Turnover calculated in accordance with Article 5 of the Merger Regulation.
5   L&G Insurance is only active in the UK.
6   Cases M.6957 – IF P&C/TopDanmark; M.6217 – Baloise Holding/Nateus/Nateus Life.
7   Cases M.6957 – IF P&C/Topdanmark; M.6053 – CVC/Apollo/Brit Insurance.
                                                          2
 ---pagebreak--- 4.1 Non-life insurance
4.1.1   Previous decisional practice
(8)     As regards product market definition, in previous cases, the Commission observed
        that there were indications of a potential degree of supply-side substitutability
        between different types of non-life insurance products: the conditions for insurance
        of certain types of risks are quite similar and most large non-life insurers are active
        in several types of risk coverage.8 However, the Commission also considered that,
        from a demand side perspective, the characteristics and purpose of the different types
        of insurance are distinct, and that there is typically no substitutability between
        different types of insurance from a customer perspective. Therefore, the Commission
        envisaged to segment the market based on the type of risk covered, distinguishing
        notably the following segments: (i) motor vehicle, (ii) property, (iii) credit and
        suretyship, (iv) liability, (v) accident and sickness, (vi) marine, aviation and
        transport (“MAT”), and (vii) and travel insurance.9 In certain decisions, the
        Commission also distinguished additional segments, such as fire insurance10 or legal
        assistance11.
(9)     In case M.8617 – Allianz /LV General Insurance Businesses, the Commission also
        envisaged a distinct market segment for the provision of pet insurance,12 which
        comprises cover against the costs of medical treatment required for pets and liability
        in the event that the policy holder’s pet causes harm to a third party. However, the
        Commission also stated that, given the similarities with other types of personal
        liability insurance, the provision of pet insurance could be part of a broader market
        covering more types of risks within the non-life insurance market.
(10)    In addition to the above, in its past decisional practice, the Commission considered
        several alternative segmentations of the non-life insurance market. In particular, the
        Commission envisaged to further segment the market based on the applicable
        national insurance classification.13 A further distinction could also be made between
        individual and group customers.14
(11)    The Commission ultimately left open the precise product market definition for non-
        life insurance products.
(12)    As regards geographic market definition, the Commission has previously considered
        that the market for non-life insurance and its potential sub-segments are likely to be
        national in scope, with a few exceptions, such as MAT and large commercial risks,
        for which the geographic scope is likely to be wider than national.15 Ultimately, the
        Commission left the precise geographic market definition open.
8   Cases M.6957 – IF P&C/TopDanmark and M.6053 – CVC/Apollo/Brit Insurance.
9   Cases M.4284 – AXA/Winterthur; and M.4701 – Generali/PPF Insurance Business.
10  Case M.4844 – Fortis/ABN Amro Assets.
11  Case M.8905 – Axa Group / Roland.
12  Case M.8617 – Allianz /LV General Insurance Businesses.
13  Case M.6649 – Allianz/Insurance Portfolio and Brokerage Services of Gan Eurocourtage.
14  Case M.8257 – NN Group/Delta Lloyd.
15  Cases M.8617 – Allianz/LV General Insurance Business and M.4284 – AXA/Winterthur.
                                                       3
 ---pagebreak--- 4.1.2    Notifying Party’s views
(13)     The Notifying Party submits that there is a single overall market for the provision of
         non-life insurance, which is national in scope, but considers that the exact
         delineation of the relevant product and geographic market can be left open.
4.1.3    Commission’s assessment
(14)     The results of the market investigation suggest the existence of a distinct market for
         the provision of pet insurance. For instance, all competitors consider that pet
         insurance is a separate business line, notably on the ground that it requires “different
         underwriting knowledge and skills” and dedicated personnel.16 Moreover, although
         pet insurance products may be included in distribution contracts together with other
         non-life insurance products, they seem to be typically sold on a stand-alone basis.17
(15)     In any event, for the purpose of the present decision, the exact product and
         geographic market definition for the provision of non-life insurance can be left open
         as the Transaction does not raise serious doubts as to its compatibility with the
         internal market under any plausible market definition.
4.2 Reinsurance
4.2.1    Previous decisional practice
(16)     Reinsurance consists in providing insurance cover to another insurer for some or all
         of the liabilities assumed under its assurance policies, in order to transfer the risk
         from the insurer to the reinsurer.18
(17)     As regards product market definition, in its past decisional practice, the Commission
         considered a separate market for reinsurance, but has left open the question as to
         whether this market should be further segmented between life and non-life
         reinsurance.19
(18)     As regards geographic market definition, the Commission has previously considered
         the reinsurance market to be global in scope, due to the need to pool risks on a
         worldwide basis.20
4.2.2    Notifying Party’s views
(19)     The Notifying Party does not propose any alternative product and geographic market
         definition for reinsurance and consider that the exact delineation of the relevant
         market can be left open.
16  See replies to question 4 of pre-notification request for information to pet insurance competitors and
    replies to question 4 of questionnaire to competitors.
17  See replies to question 5 of pre-notification request for information to pet insurance competitors; replies to
    question 5 of questionnaire to competitors; and replies to question 8 of questionnaire to retailers.
18  Case M.8617 – Allianz /LV General Insurance Businesses, para. 15.
19  Cases M.6053 – CVC/ Apollo/Brit Insurance and M.5925 – MetLife/Alico/Delam.
20  Cases M.6053 – CVC/Apollo/Brit Insurance; M.5925 – MetLife/Alico/Delam; and M.5083 –
    Groupama/OTP Garancia.
                                                            4
 ---pagebreak--- 4.2.3   Commission’s assessment
(20)    For the purpose of the present decision, the Commission considers that there is no
        reason to depart from the past decisional practice and that the exact product and
        geographic market definition for reinsurance can be left open as the Transaction does
        not raise serious doubts under any plausible market definition.
4.3 Insurance distribution
4.3.1   Previous decisional practice
(21)    As regards product market definition, in past decisions, the Commission has
        considered the existence of a separate downstream market for insurance distribution
        (distinct from the upstream provision of insurance).21 The Commission has
        previously analysed whether the market for insurance distribution comprises only
        outward distribution channels or whether it should also be considered to include the
        sales force and office networks of the insurer (i.e. direct sales). This question was
        ultimately left open.22 The Commission has also considered whether a distinction
        could be made between the market for the distribution of life and non-life insurance
        products,23 but ultimately left the market definition open in this respect.
(22)    As regards geographic market definition, the Commission has previously recognised
        the national nature of insurance distribution channels, but ultimately left open the
        question as to whether the relevant geographic market could be wider than national.
4.3.2   Notifying Party’s views
(23)    The Notifying Party does not propose any alternative product and geographic market
        definition for insurance distribution and considers that the exact delineation of the
        relevant market can be left open.
4.3.3   Commission’s assessment
(24)    For the purpose of the present decision, the Commission considers that there is no
        reason to depart from the past decisional practice and that the exact product and
        geographic market definition for insurance distribution can be left open as the
        Transaction does not raise serious doubts under any plausible market definition.
5.   COMPETITIVE ASSESSMENT
5.1 Assessment of horizontally affected markets
(25)    Based on the considerations on market definition above, under the narrowest
        possible market definition, the Transaction gives rise to only one horizontally
21  Cases M.6957 – IF P&C/TopDanmark; M.6053 – CVC/Apollo/Brit Insurance; and M.4284 –
    AXA/Winterthur.
22 Cases M.6957 – IF P&C/TopDanmark, and M.6053 – CVC/Apollo/Brit Insurance.
23 Case M.6957 – IF P&C/TopDanmark.
                                                   5
 ---pagebreak---          affected market, namely the potential market for the provision of pet insurance in
         the UK.24
5.1.1    Notifying Party’s views
(26)     The Notifying Party submits that the overlap with the Target’s activities does not
         give rise to competition concerns notably on the grounds that (i) L&G Insurance is
         not a material player in this market; (ii) the combined market share of the Parties
         […]; (iii) there are a large number of competitors, including several new entrants
         over the last years and many players with market shares higher than L&G
         Insurance’s; and (iv) the Parties are not close competitors.
5.1.2    Commission’s assessment
(27)     The market shares of the Parties and their main competitors in the potential market
         for pet insurance in the UK are set out in the table below.
                                            PROVISION OF PET INSURANCE IN THE UK (2018)
                                        Market share in value         Market share in volume
                                       (gross written premiums)       (number of pets insured)
           Allianz                             [40-50]%                       [30-40]%
           L&G Insurance                         [0-5]%                         [0-5]%
                    Combined                   [40-50]%                       [30-40]%
           RSA                                 [20-30]%                       [10-20]%
           Animal Friends                      [10-20]%                        [5-10]%
           Direct Line                          [5-10]%                         [0-5]%
           E&L                                   [0-5]%                         [0-5]%
           Cardif Pinnacle                       [0-5]%                         [0-5]%
           Aviva                                 [0-5]%                         [0-5]%
           Great Lakes                           [0-5]%                         [0-5]%
           Other                                [5-10]%                       [20-30]%
           Source: ABI and Allianz estimates
(28)     In the UK pet insurance market in 2018, the Parties had a combined value market
         share of [40-50]% ([30-40]% in volume), with a modest increment of [0-5]%
         brought by L&G Insurance ([0-5]% in volume). Although the Parties’ combined
         market share is significant, this is largely attributable to Allianz’s pre-existing
         market share. Therefore, the Transaction is unlikely to bring any significant change
         to the current structure of the market.
(29)     Moreover, according to the Parties’ forecasts, their combined (value) market share is
         likely to decline from [40-50]% in 2018 to [40-50]% in 2021. Indeed, although L&G
         insurance’s market share is expected to increase over this period (+[0-5]%), this will
         be largely compensated by the decrease in Allianz’s market share (-[5-10]% over the
         same period of time). The projected decline in Allianz’s market share is due notably
         to a regulatory change introduced recently (in late 2018) according to which
         [INFORMATION ABOUT IMPACT OF REGULATORY CHANGES THAT
24  The other horizontal overlaps between the activities of the Parties in relation to the provision and
    distribution of non-life insurance in the UK do not give rise to affected markets, the Parties’ combined
    market shares being well below 20% under any plausible market definition.
                                                            6
 ---pagebreak---         HAVE LIMITED ALLIANZ’S ABILITY TO SELL THROUGH CERTAIN
        CHANNELS].25
(30)    Post-Transaction, the Parties would continue to face several competitors, including
        RSA ([20-30]% in value), Animal Friends ([10-20]% in value), and Direct
        Line ([5-10]% in value), as well as several smaller players.
(31)    In this respect, the evidence collected during the market investigation indicates that
        small providers of pet insurance are credible competitors, thanks notably to price
        comparison websites and to limited barriers to expand. As a competitor put it, small
        players “can operate efficiently and scale quickly”.26 This argument is also supported
        by the fact that Allianz recently lost a tender process by a UK supermarket chain to
        underwrite pet insurance policies under their brand name to a small competitor
        (Cardif Pinnacle).
(32)    A limited number of respondents to the market investigation raised concerns about
        the Transaction. In particular, one competitor claimed that, as a result of the
        Transaction, the Parties would have a particular advantage due to an unrivalled
        wealth of customer data, making it difficult for competitors, especially new entrants
        without sufficient data, to profitably compete in the UK market for pet insurance. In
        this respect, the Commission notes that this competition concern is largely
        unsubstantiated. On the one hand, given L&G Insurance’s limited market position,
        Allianz’s customer database will not significantly increase as a result of the
        Transaction. On the other hand, during the last five years, several new players
        entered the market as well as small competitors increased their market share,
        suggesting that data may not be an essential input.27
(33)    The Commission also investigated the claim of one respondent to the market
        investigation, according to which post-Transaction, the combined entity could
        benefit of its size in the pet insurance market to price competitors out of the market
        by lowering prices below a profitable level and then raise prices again. The evidence
        in the Commission’s file does not support the above claim. In particular, the results
        of the market investigation revealed that barriers to entry/expand in the UK market
        for pet insurance are low, with practically no capacity constraints, and that pet
        insurance is largely substitutable with other non-life insurance products, from a
        supply side perspective.28 It follows that competitors having exited the pet insurance
        segment because of the predatory pricing, or other insurers active in other non-life
        insurance market segments, are likely to enter (or to re-enter) this market segment
        when the predator raises prices again. The above would limit the ability of the
25 See notably pre-notification request for information to pet insurance competitors.
26 See replies to question 9 of pre-notification request for information to pet insurance competitors; replies to
   question 9 of questionnaire to competitors; and replies to question 13 of questionnaire to retailers.
27 For instance, according to the Parties’ estimates, Great Lakes with its brand “Bought by many” entered the
   market in 2017 and increased its market share by 50% over the last three years, while the pet insurance
   market in the UK overall grew by 22% during that time. Over the last five years (2014-2019), […]*
   (including the Target) entered the market for pet insurance in the UK (see the Parties’ reply to question 2
   of RFI 3).
28 See notably replies to question 9 of pre-notification request for information to pet insurance competitors;
   replies to question 9 of questionnaire to competitors; and replies to question 13 of questionnaire to
   retailers.
* Should read “eight new insurers”.
                                                           7
 ---pagebreak---         combined entity to implement a predatory pricing strategy. Moreover, as previously
        mentioned, the increment in market share being modest, the Transaction would not
        bring any significant change to the current structure of the market. Additionally, the
        Commission notes that the above concern contrasts with Allianz’s current market
        position rather at the high-end in terms of value in pet insurance. Consequently,
        overall, trying to outprice competitors in the UK pet insurance market would seem to
        be unprofitable and ultimately counter-productive.
(34)    Based on the above considerations, which are supported by the results of the market
        investigation, the Commission concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the provision of
        pet insurance in the UK.
5.2 Assessment of vertically affected markets
(35)    The Transaction also leads to the following potential vertically affected markets:
        -    the (upstream) provision of pet insurance in the UK and the (downstream)
             distribution of non-life insurance in the UK
        -    the (upstream) provision of reinsurance at global level and the (downstream)
             provision of pet insurance in the UK.
5.2.1 Vertical link between the provision of pet insurance (UK) and the distribution of
      non-life insurance (UK)
(36)    In the UK, both Parties are active on (i) the possible (upstream) market for the
        provision pet insurance and (ii) the (downstream) market for the distribution of non-
        life insurance. These vertically related markets are affected as a result of the Parties’
        combined market share in the UK pet insurance market (see table below).
                                             PARTIES’ (VALUE) MARKET SHARES IN THE UK (2018)
                                          Pet insurance market             Non-life insurance Distribution29
                                                (upstream)                           (downstream)
          Allianz                                [40-50]%                                [0-5]%
          L&G Insurance                           [0-5]%                                < [0-5]%
                    Combined                     [40-50]%                               < [0-5]%
        Source: ABI and Allianz estimates (upstream) / Global Data UK and SFCR (downstream)
5.2.1.1 Notifying Party’s views
(37)    The Notifying Party’s submits that, in line with the Commission’s findings in
        Allianz/LV General Insurance Businesses,30 the above vertical link does not give rise
        to any foreclosure risk. First, it is claimed that the combined entity would not have
        the ability or incentives to foreclose downstream rivals on the grounds that (i) the
        Parties’ pet insurance products do not constitute an essential input for downstream
        distributors and (ii) L&G Insurance is not a material player on the upstream market.
        Second, it is argued that the risk of customer foreclosure can be excluded since
29  Including the distribution of their own products and third-party insurance products.
30  Case M.8617 – Allianz/LV General Insurance Businesses.
                                                            8
 ---pagebreak---         (i) the Parties’ downstream market shares are marginal and (ii) L&G Insurance does
        not distribute third party insurance products.
5.2.1.2 Commission’s assessment
(38)    The Commission considers that, post-Transaction, the combined entity is unlikely to
        have the ability to foreclose its downstream or upstream rivals for several reasons.
(39)    As regards potential input foreclosure, the increment brought by the Transaction on
        the potential pet insurance market in the UK is indeed very small ([0-5]% in value,
        [0-5]% in volume). Therefore, the Transaction is unlikely to change the current
        structure of the market. Moreover, subject to limited exceptions, the pet insurance
        products provided by the Parties are only sold through direct channels31 and,
        therefore, do not involve third-party distributors.
(40)    As regards potential customer foreclosure, the Parties are unlikely to have the ability
        to harm upstream rivals given the very limited market presence of the Parties on the
        downstream market for the distribution of non-life insurance (below [0-5]%
        including both outward distribution channels and direct sales).32 Thus, there would
        remain sufficient alternative distributors for competing pet insurance providers.
        Moreover, L&G Insurance only distributes its own products, which means that the
        Transaction has no impact on Allianz’s ability to foreclose upstream competitors.
(41)    Based on the above considerations, the Transaction is unlikely to raise serious
        doubts as to its compatibility with the internal market in relation to the vertical link
        between the provision of pet insurance in the UK (upstream) and the distribution of
        non-life insurance in the UK (downstream).
5.2.2    Vertical link between the provision of reinsurance (global) and pet insurance (UK)
(42)    The Transaction also gives rise to a vertical relationship between Allianz’s activities
        on the global market for reinsurance (upstream) and the Parties’ activities on the
        potential UK market for pet insurance (downstream). These vertically related
        markets are affected as a result of the Parties’ combined market share in the UK pet
        insurance market (see table below).
                                                   PARTIES’ (VALUE) MARKET SHARES (2018)
                                        Reinsurance (worldwide)                Pet insurance market (UK)
                                                (upstream)                             (downstream)
          Allianz                                 [0-5]%                                 [40-50]%
          L&G Insurance                              -                                    [0-5]%
                     Combined                     [0-5]%                                 [40-50]%
        Source: S&P Global ratings (upstream) / ABI and Allianz estimates (downstream)
31  The Parties’ direct sales of pet insurance also include policies sold pursuant to “affinity deals” concluded
    with retailers (such as supermarkets). Affinity deals allow insurers to offer policies for sale under the
    brand of a supermarket or other retailer. The insurance policies are underwritten and sold directly by the
    insurer who handles all aspect of the sales process.
32 Considering only distribution of third-party insurance products (to the exclusion of direct sales), the
    Parties’ activities do not overlap. Only Allianz distributes third-party insurance product and its market
    share on that segment in the UK is negligible ([0-5]%).
                                                           9
 ---pagebreak--- 5.2.2.1 Notifying Party’s views
(43)    The Notifying Party submits that, in line with the Commission’s findings in
        Allianz/LV General Insurance Businesses,33 the above vertical link does not raise
        any foreclosure risk on the grounds that (i) Allianz has a de minimis market share on
        the upstream global market for reinsurance, whereas L&G Insurance is not active on
        that market, and (ii) downstream, L&G Insurance accounts for a tiny proportion of
        the overall global demand for reinsurance services.
5.2.2.2 Commission’s assessment
(44)    The Commission considers that, post-Transaction, the combined entity is unlikely to
        have the ability to foreclose the markets downstream or upstream for several reasons.
(45)    As regards potential input foreclosure, only Allianz is active on the upstream global
        reinsurance market. Given its negligible market share on this market, Allianz would
        be unable to foreclose competitors on the downstream potential UK pet insurance
        market.
(46)    As regards potential customer foreclosure, the Commission notes that reinsurance
        services involve the pooling of a very wide range of risks on a worldwide basis.34 In
        this respect, the Parties confirmed that, to the best of their knowledge there are no
        reinsurers specialised in pet insurance. The above corroborates the Parties’ claim that
        L&G Insurance accounts for a tiny proportion of the total demand for reinsurance
        services. Consequently, the combined entity would not be in a position to restrict the
        access of its upstream rivals to a significant customer base.
(47)    Based on the above considerations, the Transaction does not raise serious doubts as
        to its compatibility with the internal market in relation to the vertical link between
        the provision of reinsurance at global level (upstream) and the provision of pet
        insurance in the UK (downstream).
6.   CONCLUSION
(48)    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)
                                                            Margrethe VESTAGER
                                                            Member of the Commission
33  Case M.8617 – Allianz/LV General Insurance Businesses, para.40.
34  Case M.8617 – Allianz/LV General Insurance Businesses, para. 48.
                                                     10