Antitrust regulator may block IAG bid for AMI

Wednesday 25th January 2012

The Commerce Commission will look at whether banks will act as a competitive constraint on insurers when it weighs up whether Insurance Australia Group is allowed to acquire the good businesses of AMI Insurance.

The antitrust regulator has to test whether the takeover will substantially lessen competition, and may not clear the acquisition if it does. IAG holds that it will face strong competition after the acquisition from existing rivals and banks, according to the commission’s statement of preliminary issues.

“The commission understands that no New Zealand bank offering general insurance products underwrites its own policies. Instead, it will resell a product of an insurance company,” the regulator said.

“The commission will assess whether or not banks are able to provide competitive constraint as a result of this relationship,” it said.

Last month, IAG emerged as the buyer for AMI’s good businesses, offering $380 million for the insurer, and leaving the liability for exposure to the Canterbury earthquakes with the government.

The Australian insurer, whose local brands include State and NZI, submits market entry isn’t so onerous as to prevent credible alternatives, which could come from either banks moving into underwriting or international players entering the local market.

The antitrust regulator has defined the market into separate underwriting and retail insurance sectors. The commission will also assess whether related markets such as windscreen or motor vehicle repairs are relevant to the bid.

The tie-up will lift IAG’s market share to about 40 percent and add about 30 percent to its locally sourced premium income.

AMI was forced to look for new capital since the government provided a $500 million financial backstop that allowed the insurer to cope with surging reinsurance costs and gross claims from the Christchurch earthquakes of almost $2 billion.

(BusinessDesk)

BusinessDesk.co.nz

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