Medical Liability Mutual Insurance Co. is not the only large medical professional liability insurer expecting to complete a significant corporate reorganization in 2017.
Joseph Cregan, executive vice president and chief legal officer of the Georgia-based and Georgia-focused MAG Mutual Insurance Co., said Aug. 24 that his company was close to completing a conversion into a mutual insurance holding company structure in a transaction intended to enhance its strategic and financial flexibility.
New York-focused Medical Liability Mutual, the nation's third-largest writer of physicians and surgeons direct premiums written in 2016, is targeting a late 2017 completion for a proposed sponsored demutualization and a sale of its stock successor to Berkshire Hathaway Inc.'s National Indemnity Co. By virtue of its ownership of Medical Protective Co., Berkshire Hathaway ranked as the No. 1 writer of physicians and surgeons direct premiums written at the group level, followed by Doctors Co. An Interinsurance Exchange. NORCAL Mutual Insurance Co., ProAssurance Corp., Coverys and MAG Mutual ranked fourth through seventh at the group level.
MAG Mutual, which holds a dominant share of Georgia's medical professional liability market, confirmed earlier published reports in the notes to its June 30 quarterly statement by disclosing that it filed a reorganization plan with the Georgia Insurance Department during the second quarter to create a mutual insurance holding company system. The company would convert into a stock entity and its policyholders' membership interests would be transferred to the newly formed MAG Mutual Holding Co.
"Under its mutual form of organization, the company is constrained from pursuing acquisitions, diversifying its operations, undertaking corporate realignments and restructurings, and raising additional capital," Locke Lord LLP Partner J. Brett Pritchard explained to the SEC in a letter dated June 16.
Pritchard, MAG Mutual's outside legal counsel in connection with the restructuring, further said his client must rely primarily on internally generated funds because it is not authorized to issue capital stock. As such, he added, "The capital raising limitations imposed by the company's mutual form and related barriers to acquisition activity place it at a competitive disadvantage with its competitors organized as stock companies."
As part of a mutual insurance holding company structure, MAG Mutual would be able to "more easily partner with other mutual insurance companies and mutual insurance holding companies, thereby providing an avenue for expansion, efficiencies of scale and diversification," Pritchard said. The structure would "facilitate the company's ability to expand its business and, when needed, raise capital through sales of securities," he added.
MAG Mutual is not necessarily a stranger to mergers and acquisitions, however. The company acquired a 25% ownership interest in Denver-based COPIC Insurance Co. for $134.1 million in cash through a November 2015 stock purchase agreement. A year later, it bought the assets, liabilities and common stock of Tift Area Captive Insurance Co. Inc., a Tennessee-domiciled captive focused on medical professional liability business, for just more than $4 million. In a smaller 2013 deal valued at less than $1.5 million, MAG Mutual acquired South Carolina Physicians Assurance Co.
Between MAG Mutual and its Arizona-domiciled stock insurance subsidiary Professional Security Insurance Co., the group generated $272.1 million in direct premiums written across all lines of business in 2016, including $97.8 million from Georgia. The resulting Georgia concentration of just less than 36% represented a decline from 37.4% in 2015 for the group as it is currently constructed. It obtained more than 40% of its premiums from Georgia as recently as 2012. Florida and North Carolina accounted for a respective 22.9% and 14.1% of the group's total 2016 direct premiums written.
In connection with MAG Mutual's partnership with COPIC, which generated 93.2% of its 2016 direct premiums written from Colorado and 6.5% from Nebraska, the companies entered an assumption reinsurance agreement effective at the start of 2016 through which COPIC assumes about $20 million in MAG Mutual's earned premiums on an annual basis.
The conversion would be the latest in a relatively steady stream of mutual insurance holding company reorganizations among a range of property and casualty companies in recent years, arguably the most notable of which was the transaction that led to the creation of the stock American Family Mutual Insurance Co. S.I.