Proposed acquisition by Unum Limited of the employee benefits business of Swiss Life (UK) plc

Affected market: Insurance

No. ME/1377/03

Please note that the full text of the decision can be downloaded from the right. What follows are extracts regarding the parties, the transaction, jurisdiction, conclusion and decision.

The OFT's decision on reference under section 33 given on 31 October 2003

PARTIES

Unum Limited (trading as UnumProvident) is a specialist provider of income protection, critical illness and life insurance products and related services. In the year ending 31 December 2002, UnumProvident's reported UK turnover was £269m on gross year-end assets of £1,046m.

Swiss Life (UK) Employee Benefits sells life, income protection and critical illness insurance products. Its parent company Swiss Life (UK) plc specialises in insurance-based income protection products to both employers and individuals. The proposed transaction only covers the Swiss Life (UK) Employee Benefits business. The UK turnover of the Swiss Life Employee Benefits business was approximately £211m in the year ending 31 December 2002.

TRANSACTION

On 14 August 2003 UnumProvident and Swiss Life (UK) entered into agreements under which UnumProvident has agreed to acquire:

a) the in-force policies, related reserves and claims of Swiss Life (UK)'s group income protection business (and renewal rights); and
b) the renewal rights to the Swiss Life (UK)'s group critical illness and group life businesses.

The transaction was notified as an informal submission on 12 September 2003. The administrative deadline for a decision is 31 October 2003.

JURISDICTION

As a result of this transaction, UnumProvident and Swiss Life's Employee Benefits business will cease to be distinct. The UK turnover of Swiss Life's Employee Benefits exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. A relevant merger situation is likely to be created.

CONCLUSION

The merger would reduce the number of major suppliers of GL, GIP and GCI from three to two, with the merged entity holding a [30-40 per cent] (see note 1) share of supply (before estimated policy lapses) in the GL insurance segment and more than half the GCI and GIP business in the UK.

High potential shares of supply do not necessarily indicate prospective market power. First, the products in question might face competitive constraints from alternative choices open to customers – for example switching to an alternative provider, choosing to end Group Risk provision or opting to self-insure. However, evidence from third parties indicates that switching may be limited following the merger, particularly for large contracts, and self-insurance is not considered a viable alternative for the majority of customers.

Second, other major insurers might bring about potential competition via entry and expansion in the supply of group risk products. Although other insurers appear to have relevant resources and capabilities to enter and expand in the Group Risk sector, none appears to have been particularly successful in winning business from larger providers. Shares of supply have been relatively stable over time, perhaps reflecting switching costs and informational advantages of incumbency.

At the OFT stage of investigation, therefore, it cannot be assumed that competitive pressures are significantly strong to remove the prospect that the merger might substantially lessen competition. Moreover, the widespread competition concerns of third parties – especially intermediaries – are notable. The OFT therefore believes that it is or may be the case that the merger may be expected to result in a substantial lessening of competition in the supply of Group Risk products in the United Kingdom.

DECISION

This merger will therefore be referred to the Competition Commission under section 33(1) of the Act.

NOTES

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