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Commerce Commission clears IAG bid to buy quake-hit AMI, giving IAG around 60% of home and car insurance markets

Personal Finance
Commerce Commission clears IAG bid to buy quake-hit AMI, giving IAG around 60% of home and car insurance markets

The Commerce Commission has rubber stamped insurer IAG's purchase of quake-hit rival AMI, in a deal that will give IAG around 60% market share of New Zealand's home and contents, and car insurance markets.

But Australian-owned IAG is still waiting on the Reserve Bank of New Zealand's approval for the acquisition, as the central bank now regulates New Zealand's insurance market. The Commerce Commission approval follows approval from the Overseas Investment Office for the aquisition.

Interest.co.nz understands AMI must now send a letter to its policy holders notifying them of RBNZ requirements and giving the policy holders an opportunity to give feedback on the separation of AMI's business. A Reserve Bank spokeswoman said the RBNZ's only comment at the moment was that its work on reviewing the transaction was continuing.

If it receives RBNZ approval, Australia's IAG, which operates State Insurance and NZI in New Zealand, will take control of AMI's activities excluding its earthquake liabilities, which will remain with the government after it bailed out AMI following losses stemming from the Christchurch earthquakes which hit the city in September 2010 and February 2011.

The government is expected to take a NZ$120 million hit from those earthquake liabilities. IAG paid NZ$380 million for AMI's good business.

Merrill Lynch analysts pointed out last year that an IAG-AMI hook up would give the new, expanded IAG 56% and 61% market share, respectively, in the home and contents and motor insurance markets. See more here in an IAG presentation to investors (page 7).

See Amanda Morall's December 16 article, AMI accepts conditional NZ$380 mln IAG offer for its "good" business, Gov't to retain AMI's earthquake related exposure.

Commerce Commission Chair Mark Berry said the Commission was satisfied that the proposed acquisition would not be likely to substantially lessen competition in the national markets for house, contents, and motor vehicle insurance.

"The Commission considers that there will be sufficient competition from existing participants in the relevant markets to constrain the merged entity from exercising any market power," Berry said.

"The Commission is also satisfied that the proposed acquisition will not be likely to substantially lessen competition in the markets for windscreen repair/replacement and collision repair services," he said.

A public version of the written reasons for the decision would be available on the Commission’s website at: www.comcom.govt.nz/clearances-register

The Commission said it would not be making further comment until the written reasons were released.

CEO of IAG’s New Zealand business, Jacki Johnson, said the acquisition reflected the positive long term outlook for the New Zealand insurance market. IAG was now waiting for RBNZ approval.

“New Zealand is regarded as a home market for IAG, and we are confident that it will continue to offer attractive returns into the future. We look forward to receiving final approval so we can bring certainty for AMI customers and staff,” she said.

The acquisition excluded all liabilities relating to current and future claims from the earthquakes which have impacted the Canterbury region, she said.

Background from the Commerce Commission

Both IAG and AMI supply domestic general insurance products including home, contents, and car insurance.

IAG is part of the Insurance Australia Group of companies and is active in both New Zealand and Australia. In New Zealand, IAG offers insurance services under two brands – State Insurance and NZI.

AMI has a national branch network across New Zealand and has around 500,000 customers.

As a result of the 2010 and 2011 Canterbury earthquakes, AMI incurred significant insured losses which required it to enter into a capital support arrangement with the New Zealand Government in order to continue operating. Subsequently, AMI determined that the best course of action was to seek an external investor.

Under the terms of the proposed acquisition, any of AMI’s liabilities resulting from the Canterbury earthquakes will be transferred to a company owned by the Crown. IAG will purchase the remaining assets of AMI and also provide claims management and administration services for claims arising from the Canterbury earthquakes

Assessing an application for a merger or acquisition

When considering a proposed merger, the Commission must decide whether the competition that is lost in a market when two businesses merge is substantial. We will give clearance to a proposed merger only if we are satisfied that the merger is unlikely to have the effect of substantially lessening competition in a market.

A fact sheet explaining how the Commission assesses a merger application is available for download at http://www.comcom.govt.nz/mergers-and-acquisitions-merger-assessment-fact-sheet/

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6 Comments

One would expect nothing else - the consolidation of New Zealand's FIRE economy in the hands of Australian control, if not ownership, is nearly complete.

 

What's next - certainly not the utopian dream (perfected by Hickey & Rudd) of our central bank printing us towards financial nirvana?

 

These Aussie businessmen and their local placemen know when and how to make a buck out of us and are not about to release their lock on our pockets.  

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Your 850 for 300K will not mean the neighbour is paying 1700 for 600K cover....you are being done to a turn...same dirty game played in the car insurance game...the haves pay less,...haha

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Our AMI premium has increased by 40%. And by the insurance stories I've heard from many people, I'm not even sure we'll get the service we're paying for if we actually need it...

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0.28% of the homes value per year in premium doesn't seem too bad to me?

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i have just opened my bill from state.40%increase in the premium on last year.

thank god i live in a modest house  in hamilton.

why should it go up by so much this isn't chch or wgtn.

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So does anyone know how much the earthquake portion of the bill has risen and I don't mean the EQC portion, I mean the EQ portion of the insurance co bill. Would love to know what the basis for the rise is.

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