The Italian Competition Authority clears a major insurance merger by imposing a set of stringent remedies.

By a decision made on 19 June 2012 (Case C11524, UGF-Premafin) the Italian Competition Authority (ICA) has conditionally cleared the Unipol Gruppo Finanziario (UGF) acquisition of Premafin Fondiaria (Fondiaria). The notified merger would negatively affect several insurance markets giving or strengthening the UGF dominant position. To avert such negative effects the ICA conditioned the approval of the merger on the implementation of a set of stringent structural and behavioural remedies on the merging parties and on Mediobanca. Mediobanca not only controlled Assicurazioni Generali (AG), the next competitor of the merged entity, but it was also the main funder of the merging parties.

The competition problems of the merger

The ICA based its concerns about the competition impact of the proposed merger on the market  collectively held by the merging parties and the results of the HHI test. The ICA found that the merger would restrict competition in many non-life and life insurance markets. In the market for third-party motor liability insurance policies, where Premafin was the leading price-setting operator and  UGF was the only operator capable to exert a competition pressure on it, the merger would enable the merging parties to increase their prices. Due to the weakened competition in post-merger markets, also the competitors of the merging parties would follow suit of the latter, finding profitable to rise prices. In that regard, the ICA relied on the theory of unilateral effects to examine the competition effects of the notified transaction in this market. Another factor contributing to lessen competition in motor liability insurance markets and in non-life and life insurance markets is that AG is the next competitors of the merging parties in those markets. AG is connected with UGF through a number of structural and personal links that may reduce the competition pressure that it would be able to exert on the merging parties. Finally, the merger would result in a dominant position in the market for distribution of insurance policies as the parties already enjoyed a wide commercial network in many provinces.

The remedies imposed by the ICA

To resolve the above competition problems, the ICA required the parties to implement a wide set of remedies. First, it imposed a number of behavioural remedies on UGF regarding its governance rules. In that regard, UGF must dissolve the termination agreement entered by Unicredit and Premafin regarding the shares of subsidiary Fondiaria Sai and shall refrain from entering any such agreements in future with Mediobanca and Unicredit. The latter is also an important funder of the parties and some personal and structural links with Mediobanca. UGF must also ensure that the directors of its subsidiary Fondiaria Sai appointed by Unicredit will resign and none of the members of the governance bodies of the UGF group corporate will be related, directly or indirectly, to Mediobanca, Unicredit and AG. Finally, UGF has to reduce the debts of its subsidiaries to Mediobanca.

The structural remedies imposed by the ICA on UGF require it to divest the Fondiaria Sai stakes in AG and Mediobanca to independent third parties. More traditionally, UGF has also to divest company branches so that its market shares will be below the 30% threshold in each market for life and non-life products. Mediobanca, among other things, has to divest its shares in the companies of the UGF groups and refrain in participating in the governance bodies of those companies. 

Interestingly to sever all the links between the merging parties and the other financial operators negatively affecting competition, the ICA relied on a mix of structural and behavioural remedies. It did not content itself with obliging the parties to divest their shareholdings in competitors or lenders, but it also subjected the authorization of the transaction upon the parties implementing a number of measures concerning governing rules. Such measures comprised the dissolution of shareholder agreements and the appointment of independent members to the board of directors. In the ICA view, strengthening the governance of the merging parties should strengthen the independence from the other financial operators, thereby reinforcing competition.

Finally, to implement the divestiture remedies, like the European Commission, also the ICA relies on monitoring trustees. In UGF-Premafin the Mediobanca shares to be sold by UGF will be deposited with a monitoring trustee, previously approved by the ICA. The trustee will keep the shares without being allowed to take part in the general meeting of the Mediobanca shareholders and exercise the voting rights attached to the shares.