Economics: New Zealand Government Essay

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Media Releases | Commerce Commission 29/12/11 4:53 PM
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Media Releases
1 March 2012

IAG granted clearance to acquire part of AMI
The Commerce Commission has granted a clearance application for IAG (NZ) Holdings Limited to acquire certain business assets of AMI Insurance Limited.
The acquisition involves the transfer by AMI of its business, excluding its Canterbury earthquake liabilities, to a newly created company called AMI Newco. IAG will acquire 100% of the shares in this new company. AMI’s Canterbury earthquake liabilities will be taken over by the Government.
Commerce Commission Chair Dr Mark Berry said the Commission is satisfied that the proposed acquisition will 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.
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.
A public version of the written reasons for the decision will be available soon on the Commission’s website at: www.comcom.govt.nz/clearances-register
The Commission will not be making further comment until the written reasons are released.

Background
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

© Commerce Commission 2012
http://www.comcom.govt.nz/media-releases/detail/2012/iag-granted-clearance-to-acquire-part-of-ami


MARKET STRUCTURES
The Commission. Article: IAG granted clearance to acquire part of AMI, retrieved 15 April 2012 from http://www.comcom.govt.nz/media-releases/detail/2012/iag-granted-clearance-to-acquire-part-of-ami

Summary
Since 2010 Canterbury earthquake and 2011, AMI Insurance has significantly suffered losses and have requested for support from the New Zealand Government in order to survive. In the aftermath it was in the company’s best interest that they seek an outside investor. AMI lodged an application to the Commission for a proposed merger with IAG (Insurance Australia Group).

After consideration, The Commission was satisfied with the proposal and granted clearance. With the merger, there will not be any advances made in the market that would lessen competition for house, contents and motor vehicle insurance purposes. There will still be sufficient competition in the market that will have an impact on quotes and prices.

Economic Theory
The Insurance industry in New Zealand is more of an oligopoly structure. There