Insurance Australia Group's proposed A$1.84 billion ($1.97 billion) acquisition of Wesfarmers' insurance underwriting business was given a boost after Australia's competition watchdog said it would not oppose the deal.
The Australian Competition and Consumer Commission (ACCC) said it had closely reviewed the merger between Australia's largest and "fifth or sixth largest" general insurers but concluded there was no basis on which to oppose the transaction.
The ACCC noted that New Zealand's Commerce Commission was continuing to review the proposed acquisition. Earlier this month, Suncorp Group warned that the deal could kill off any remaining competitive balance in New Zealand's insurance market.
IAG controls more than half of the personal, motor, and home and contents insurance markets in New Zealand. The company's market share will shoot up to more than 60 per cent in some cases following the buy, Suncorp argued.
Today, in respect of Australia's rural insurance market where IAG and Wesfarmers are dominant players, the ACCC found that Achmea - an insurer part-owned by Dutch lender Rabobank - was likely to expand in Australia. Other general insurers "not currently supplying packaged farm insurance and crop insurance, including Suncorp and Zurich ... represent credible threats of future entry or re-entry".
ACCC chairman Rod Sims said: "The ACCC found that, while the proposed acquisition would reduce the number of key underwriters from six to five for packaged farm insurance and crop insurance in Australia, the level of existing and potential competition in this market would be expected to constrain the merged firm."
In the case of home and motor insurance, the ACCC concluded that other competitors, including the banks, were likely to have the ability to provide "strong price-based" competition.
The watchdog also reviewed a 10-year agreement between Wesfarmers and Coles to provide consumer insurance products to customers of the supermarket chain, but determined that IAG's proposed acquisition of the Wesfarmers' unit was "unlikely to materially change competitive dynamics".
- Sydney Morning Herald