The Commerce Commission has declined to grant clearance to Vero Insurance New Zealand, a unit of Australia's financial services group Suncorp, to own up to 100% of the shares in nonlife insurer Tower.
The proposed takeover would have merged the second and third largest insurers in New Zealand for domestic house, contents and private motor vehicle insurance. The combined entity would have commanded 30% of the insurance market.
In New Zealand, Suncorp New Zealand also has a stake in AA Life and AA Insurance through joint ventures with the NZ Automobile Association.
The regulator's Chairman Dr Mark Berry said in a statement that the Commission was not satisfied that the merger would not have the effect of substantially lessening competition in the personal insurance market.
Currently, Australian insurance giant, IAG, has a 46% market share in New Zealand. Post-merger, with Vero's 30% market share, there would be only two substantial competitors in the market.
Dr Berry said: “The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets. While there are other smaller competitors in personal insurance, we do not consider that they replicate the level of constraint that Tower imposes. Without the competition that Tower provides, there is a real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality, such as reduced insurance coverage.”
“Relevant to this competitive landscape, Tower is making concerted efforts to reposition itself in the market and improve its performance. There is also a real chance that Tower would be purchased by a third party further enhancing Tower’s significance as an independent competitor in the market.”
Suncorp had offered to buy Tower for A$219.3 million (US$173 million), or A$1.30 a share in February, increasing the offer to A$1.40 a share in June. It already owns a stake of just under 20% in Tower.
Responding to the competition regulator's decision, Tower said it would consider the impact of the Commission's decision on its business plans, including a possible capital raising in the next few months.