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1. Notification was made with a request for a certificate under Section 4(2) of the Competition Act, 1991, or in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2), by AGF-Irish Life Holdings plc., on 3 March 1992 in respect of arrangements for the rationalisation of two wholly-owned subsidiaries of the notifying party.

2. Notice of intention to take a favourable decision was published in the 'Irish Times' on 10 April, 1992. No submissions were received from interested parties.

3. This decision concerns arrangements for the rationalisation of the operation of two companies which are both wholly-owned subsidiaries of a third company. The arrangements involve each subsidiary specialising in certain lines of the business concerned and transferring its other lines to the other subsidiary.

4. The parties to the arrangements are three companies, AGF - Irish Life Holdings plc (AGFILH), Church & General Insurance plc (CG) and The Insurance Corporation of Ireland plc (ICI). The notification was made on behalf of AGFILH, of which both CG and ICI are wholly-owned subsidiaries.

5. AGFILH is a public limited company registered in Ireland with a registered office in Dublin. It is an investment holding company with no full-time employees. It is owned to the extent of about 66% by AGF Holdings Ireland, about 30% by Irish Life Assurance plc and about 3% by other interests. The ultimate parent company of AGF Holdings Ireland is Societe Centrale des Assurances Generales de France, the French holding company of the third largest life and general insurance company in France, which is about 78% owned by the French State. It has subsidiaries in forty countries and at the end of 1990 had total assets of about £21 billion. Irish Life Assurance plc is the largest Irish life assurance company. It is a wholly-owned subsidiary of Irish Life plc which is quoted on the stock exchange in Dublin and London with its principal shareholder being the Irish Minister for Finance with about 34% of the issued share capital; the Assurances Generales de France Group owns about 5% of Irish Life plc. Irish Life plc was privatised in 1991.

6. ICI is a wholly-owned subsidiary of AGFILH which acquired the Irish business and name of the Insurance Corporation of Ireland plc from the Administrator of that company on 31 July 1990. ICI underwrites all classes of general insurance in both the Republic of Ireland and Northern Ireland. Its head office is in Dublin and it has seven branch offices in Ireland, including one in Northern Ireland. It has about 420 employees and the value of its gross premiums written in 1990 was £70m.

7. CG underwrites all classes of non-life insurance. All of its issued share capital was acquired by AGFILH on 27 June 1991. Its head office is in Dublin and it has seven branch offices in the same locations as those of ICI. It has about 340 employees and the value of its gross premiums written in 1990 was £61m.

8. At the time that AGFILH acquired CG, the EC Commission Merger Task Force formed the view that the transaction would not give rise to any concentration which had a "Community dimension" within the meaning of Regulation (EEC) 4064/89. The transaction was notified in Ireland to the Minister for Industry and Commerce under the Mergers, Takeovers and Monopolies (Control) Act, 1978, and the Minister allowed the proposal to proceed without making it subject to any conditions.

9. Following the acquisition by AGFILH of the business of ICI and of CG, the directors of ICI and of CG are the same as the directors of AGFILH.

10. ICI and CG are non-life insurance companies. Both are authorised in Ireland and in the UK to transact all classes of non-life insurance. Such insurance can be divided into seven categories

- accident and health insurance,

- motor vehicle insurance,

- marine, aviation and transit insurance,

- fire and other damage to property insurance,

- liability insurance,

- miscellaneous pecuniary loss insurance,

- treaty reinsurance.

11. The market involved is the sale in Ireland of the non-life insurance products mentioned above. The market is regulated by the Insurance Acts and by EC harmonisation directives which have been implemented by Statutory Instruments. Authorised assurance and insurance companies are required to submit annual returns to the Minister for Industry and Commerce and returns are summarised in the Insurance Annual Report or "Blue Book" produced by the Department.

12. The 1990 Blue Book lists 52 companies as holding authorisations to transact non-life insurance business in Ireland, with 24 having their head office in Ireland and a further 27 having their head office in other EC member states. Thirty six of these companies are shown to be active on the Irish domestic market. While some of these are specialists who would not transact all classes of non-life insurance, it is understood that most transact all the major classes. The Second Non-Life Insurance Services Directive (of the EC) was implemented in Ireland 1991. This allows insurers who are established in other member states, but who are not established in Ireland, to transact business directly in Ireland. It is understood that 53% of business is transacted through brokers and 47% of the market is direct, but these proportions vary widely for different classes of insurance. While there would be some differences between the cover offered by different companies, the basic cover offered by competitors within the various classes of insurance can be regarded as similar.

13. On the basis of net premiums written in 1990, the Blue Book indicates that ICI has a 6.8% share of the Irish market and CG a 5.9% share. The Blue Book also indicates the shares of the major companies, on the basis of gross premiums written, in each of the seven categories. The share of CG varies from negligible in the treaty reinsurance category to 13% of the marine and aviation category. The share of ICI ranges from 2.4% of the accident and health category to 50% of the marine and aviation category, with its next highest category share being 14.3% of the pecuniary loss category. (In the marine, aviation and transit category the market has been open for many years to foreign insurers to transact on a service basis).

14. Following the acquisition of the subsidiaries, the Board of AGFILH is now seeking to make arrangements which would

(i) rationalise the administration side of the business by pooling common resources and thus facilitate more competitive future premium levels;

(ii) arrange for each operational company to specialise in distinctive lines of the Irish insurance market so that each subsidiary will be better able to concentrate on its main strengths and thereby become more competitive;

(iii) review the channels of distribution so that the commercial relationships with the customers, intermediaries and shareholders were preserved and even improved;

It is proposed that

(i) personal lines business should transfer from Insurance Corporation to Church & General;

(ii) commercial lines business should transfer from Church & General to Insurance Corporation;

(iii) within the Marine and Aviation class, Aviation business should transfer from Insurance Corporation to Church & General while commercial marine business should transfer from Church & General to Insurance Corporation".

As a result of the transfers of business, it is intended that Church & General will concentrate exclusively on religious, social, personal lines and aviation business while Insurance Corporation will concentrate exclusively on commercial lines and marine insurance business.

15. It is envisaged that business would transfer at renewal time on an invitation basis, with the policyholder being invited to take out a new policy on terms at least equivalent with the other company; a portfolio transfer of the business of any class from one company to another is not planned. Customers would not be compelled to transfer and would be free to transfer to other companies. The transfer process is planned to be effected between July 1992 and June 1993. It is envisaged that the transfer of business will involve 60 to 70 staff moving between the two companies. The regional offices of ICI and CG, all in the same seven cities and towns, are to be consolidated while maintaining the separate identities of the companies.

16. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void'

17. The present decision concerns arrangements involving AGFILH, Church and General (CG) and Insurance Corporation (ICI) in the non-life insurance market. Section 3(1) of the Competition Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' CG and ICI are wholly owned subsidiaries of AGFILH engaged in the provision of different types of non-life insurance. Both CG and ICI are bodies corporate engaged for gain in the provision of services and are therefore undertakings within he meaning of Section 3 of the Act.

18. AGFILH is a public limited company registered in the Republic of Ireland which trades as an investment holding company. AGFILH, being a holding company, is not directly 'engaged for gain in the production, supply or distribution of goods or the provision of a service

19. Decisions of the European Commission concerning the definition of an undertaking in a number of cases under Article 85(1) of the Treaty of Rome on which Section 4(1) is based indicate that:

'The word "undertaking" is a wide term which extends to almost any legal or natural person carrying on activities of an economic or commercial nature including, for example limited companies, partnerships, trade associations, agricultural co-operatives, sole traders and State Corporations.' [1]

20. The Authority recognises that there are some differences between Irish and EC competition law in respect of the definition of an undertaking. EC decisions may nevertheless provide some guidance on the question of undertakings. In particular the Authority accepts the EC view that the term undertaking should be interpreted widely. In the Authority's view AGFILH is engaged in economic activity, namely the provision of insurance services for gain, through subsidiary firms which it controls. It is, therefore, an undertaking within the meaning of Section 3 of the Act. This is in accordance with the view of the Authority in a previous decision where it decided that individuals were undertakings within the meaning of the Act by virtue of engaging in economic activity through firms which were under their control. [2]

21. The essential issue in this case is the fact that both CG and ICI are wholly owned subsidiaries of AGFILH. The latter company owns 100% of the share capital in both CG and ICI. The Authority is not, therefore, dealing with several economically independent undertakings but rather with a group which constitutes a single economic entity.

22. The present decision is concerned with arrangements whereby AGFILH is reorganising the activities of its two subsidiary companies so that each of them will specialise in particular segments of the non-life insurance market. Such an arrangement constitutes an agreement between undertakings within the meaning of Section 4 of the Act. The agreement affects the operations of CG and ICI in the non-life insurance market in the State.

23. The principal question that arises is whether, given the group relationship which exists between AGFILH, CG and ICI, the present notified agreement between them can be regarded as preventing, restricting or distorting competition within the meaning of Section 4(1) of the Competition Act.

24. A group relationship usually arises where there is common ownership or control of undertakings. The individual undertakings within a group would not normally enjoy commercial independence in such circumstances. The group would therefore normally be regarded as constituting a single economic entity even though it may be composed of a number of separate undertakings. Clearly an economic entity does not compete with itself.

25. The notion that members of a group do not compete with one another is implicitly recognised by legislation designed to control mergers and takeovers. A merger or takeover results in two or more separate independent undertakings being brought under common control in the context of a group relationship. It is recognised that the result of this will be to eliminate competition between undertakings which were previously operating in the same market. The elimination of competition resulting from a merger or takeover is one of the main reasons why legislation exists to control such activities in Ireland and elsewhere.

26. Neither CG nor ICI have any real commercial autonomy in their own right, although some autonomy may be delegated to them by AGFILH in order to improve overall efficiency within the group. The arrangements which are the subject of the present decision involve a reallocation of business between CG and ICI along the lines set out in paras 14 and 15. Rather than have both firms operate in all segments of the non-life insurance market, AGFILH is proposing that each should specialise in particular segments of the market in order to improve overall group efficiency. The object of these changes is to increase overall group efficiency by having CG concentrate on religious, social, personal lines and aviation business and ICI specialise in commercial lines and marine business.

27. CG and ICI, being wholly owned subsidiaries of AGFILH, and, therefore, part of a single economic entity, are not in competition with each other. While they are both undertakings they are not independent of each other but are really separate arms of the same organisation. The proposed arrangements merely involve a reallocation of functions within the group because, in the view of the group's management, this will be of benefit to it. For these reasons the Authority does not consider that the proposed arrangements prevent, restrict or distort competition within the meaning of Section 4(1) of the Act.

28. The view adopted by the Authority is in accord with that taken by the European Commission and the European Court of Justice in a number of cases under Article 85(1) of the Treaty of Rome on which Section 4(1) of the Competition Act is based. [3] While it was accepted that an agreement between a parent and a subsidiary or between two companies which are under the common control of a third may, strictly speaking, be an agreement between undertakings, agreements of this kind have been found not to offend against Article 85(1) if the 'undertakings' form an economic unit within which the subsidiary has no real freedom to determine its course of action on the market. [4]

29. In the Christiani v Nielsen case, involving a market sharing agreement between a Danish company and its wholly owned Dutch subsidiary, the European Commission ruled that the agreement only constituted a 'division of labour within the same economic entity'. The Court of Justice endorsed the Commission view in the Beguelin Import and ICI (Imperial Chemical Industries) cases. This view was restated in the Centrafarm case where the Court ruled that:

'Article 85, however, is not concerned with agreements or concerted practices between undertakings belonging to the same concern and having the status of parent and subsidiary, if the undertakings form an economic unit within which the subsidiary has no real freedom to determine its course of action on the market, and if the agreements or practices are concerned merely with the internal allocation of tasks as between the undertakings'. [5]

The latter point is particularly relevant to the present decision which concerns the internal allocation of tasks between undertakings which are part of the same group.

30. The European Commission has, however, argued in the past that agreements concluded within a corporate roup may be in breach of Article 85(1) if they wider implications, for instance agreements which restrict the scope for non-member undertakings to penetrate a given market. [6] There is some doubt on this point as the Court of Justice does not appear to have accepted this view in the Centrafarm case. In the present case the Authority does not consider that the proposed arrangements would restrict any undertakings from outside the group from entering the relevant segment of the non-life insurance market.

31. More recently in the Pompes Funebres case the Court of Justice hinted that the mere fact of a parent/subsidiary relationship is not enough to take an agreement outside of Article 85(1). In deciding on the question of whether or not the parties involved in that case were caught by Article 85(1) the Court stated that:

'The mere fact that holders of concessions belong to the same group of undertakings is not decisive in that regard. Account must be taken of the relationship between the undertakings belonging to that group ...... it is not apparent that the undertakings pursue the same market strategy, which is determined by the parent company.' [7]

32. It is clear that the present decision involves undertakings where market strategy is determined by the parent company. Indeed the notification concerns arrangement that CG and ICI should specialise in particular segments of the market. The questions raised by the Pompes Funebres case do not therefore apply.

33. AGFILH, CG and ICI are undertakings within the meaning of Section 3 of the Competition Act and the arrangements notified constitute an agreement which applies within the State.

34. The Authority does not consider that the proposed arrangements prevent, restrict or distort competition within the meaning of Section 4 of the Act because:

(i) ICI and CG, being wholly-owned subsidiaries of the same holding company, are not independent undertakings but are in fact separate arms of the same organisation and are not therefore in competition with each other;

(ii) CI and CG have no real freedom to determine their course of action on the relevant market;

(iii) The proposed arrangements merely involve a reallocation of functions within the group.

35. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the agreement between AGF-Irish Life Holdings, Church and General and Insurance Corporation of Ireland (CA/7/92), whereby Church and General and Insurance Corporation will each confine their activities to particular segments of the non-life insurance market, which was notified on 3 March 1992 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey,

Member,

14 May 1992