'Fire sale' ruled out for Aetna

By DANIEL RIORDAN

Parties from New Zealand and overseas have shown interest in buying Aetna Health's insurance policies after Southern Cross Healthcare last Friday got approval from the Commerce Commission to buy Aetna.

The market leader overcame the consumer watchdog's dominance concerns on its third attempt by undertaking to divest the number two player's 40,000 health policies.

The way is now clear for Southern Cross to obtain the key assets it was after all along - Aetna's more advanced computer systems and its First Health primary-care network, which provides specialised administrative services for doctors.

The commission granted approval on the understanding that there would be a deadline for the divestment.

Details of the timeframe remain confidential, and Southern Cross chief executive Roger Bowie would not say yesterday whether that meant weeks or months.

"We've got ample time for a competitive process ... It won't be a fire sale."



One potential buyer, Tower Health, is making the best of what it sees as a bad situation for the industry.

Managing director Jim Minto said he was disappointed to see the application approved, as it would weaken competition in the market, even with the divestment undertaking.

"The number two player is being dismantled, and every market needs a strong number two."

But the decision brings an opportunity for Tower, which has been talking to Southern Cross from the outset with a view to buying the Aetna policies.

Mr Minto said it was a peculiar scenario.

"One finds oneself in quite an unusual situation where the main competitor in the market is trying to sell you business. It's far from an ideal situation."

The commission gave as one of its reasons for granting clearance the belief that new entrants might see the Aetna policies as a way into the industry.

But Mr Minto cautioned that it would not be a simple case of new entrants' picking up policies and starting business as a health insurer.

Strong competition did not just come from who owned the policies. It was also a function of customer base, having the ability to look after those people, having good products, good systems and processes, "and most of all, having good people to deal with them."

Inheriting policies without that framework made the task of any new entrant a tough one.

Aetna policyholders the Business Herald contacted were still awaiting news from their insurer of what might happen to their policies.

Aetna has a mix of private and corporate policyholders, including many of the banks and some of the country's biggest companies.



AA Insurance general manager Chris Curtin, one of the original proposal's loudest opponents, was pleased the commission gave approval only after the divestment undertaking.

"The only disappointing thing is [Southern Cross] don't appear to have found a purchaser for the Aetna portfolio."



Sovereign Assurance director Richard Coon said the likelihood of overlap between his company's policies and Aetna's was small, given that Sovereign offered insurance covering only major hospital treatment.

State Insurance spokesman Shaun Hickey said his company was happy with the decision, which it had supported all along.