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Sponsored demutualization to give Berkshire Hathaway dominant med mal market share

A proposedsponsored demutualization of the nation's fifth-largest writer of medical professionalliability business would result in BerkshireHathaway Inc. obtaining market share of more than 2x its nearest rivalon a pro forma basis in a line the Warren Buffett-led group entered in earnest only11 years ago.

New York-basedMedical Liability Mutual InsuranceCo. said July 18 that Berkshire Hathaway's National Indemnity Co. agreed to acquire its stock successor in a transaction expectedto close in the third quarter of 2017. The transaction marks Berkshire Hathaway'slargest expansion in the medical professional liability business since it the parent of from GeneralElectric Co. in June 2005.

The BerkshireHathaway group reported just more than $1 billion in medical professional liabilitydirect premiums written in 2015, giving it nearly 10.7% share of a $9.39 billionmarket. Medical Liability Mutual, which operates exclusively in New York, held nationalmarket share of 4.5% with direct premiums written of $420.5 million. Results arelimited to entities that file annual statements with the NAIC.

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Whencombining the two entities, the resulting pro forma market share of nearly 15.2%would be more than double second-place DoctorsCo. An Interinsurance Exchange's position of 7.2%. The combined marketshare held by Doctors and the third- and fourth-place CNA Financial Corp. and ProAssurance Corp. in 2015 was 16.9%.

Underterms of the deal and New York Insurance Law, owners of eligible Medical LiabilityMutual policies will receive a proportionate share of all the cash considerationto be paid by National Indemnity. The share will be determined through a formulathat divides the premiums paid on those policies during a three-year period endedJuly 14 by the total premium Medical Liability Mutual received from all of its policyholdersduring that time frame. The company estimates that each policy owner would receivean amount approximately equal to the sum of the premiums paid on the applicableeligible policy during that three-year period.

The dealcould reshape a New York medical professional liability marketplace that has seenMedical Liability Mutual and Physicians'Reciprocal Insurers, the state's two largest carriers, steadily loseshare in recent years as risk-retention groups — most notably the Berkshire Hathaway-managed and reinsuredMedPro RRG Risk Retention Group— increased their presence.

MedProRRG and Medical Protective are party to a management and services agreement anda quota-share agreement under which the latter entity assumes 98% of the former'swritten premiums.

MedProRRG was responsible for all but about 30 basis points of the Berkshire Hathawaygroup's New York medical professional liability market share of 8.5% in 2015. Whilethe Berkshire Hathaway group's presence had shot up from 3.4% in 2014 and less than1.9% in 2013, Medical Liability Mutual's New York market share fell to less than25.5% in 2015 from 28.8% in 2014 and 32.7% in 2013.

Physicians'Reciprocal Insurers, which has operated with a policyholders' deficit since thethird quarter of 2007, saw its share slide to less than 18% in 2015 from 21.8% in2014 and 22.5% in 2013. Politico reported in May that talks for Doctors Co. to acquirethe reciprocal exchange's attorney in fact had collapsed.

NationalIndemnity's acquisition of Medical Liability Mutual is subject to a public hearingand policyholder and regulatory approval.

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Buffettin a release praisedthe insurer as a "gem." The July 18 agreement is not the first time hiscompany and Medical Liability Mutual have participated in a transaction. BerkshireHathaway acquiredthe New Jersey-focused Princeton InsuranceCo. from Medical Liability Mutual in December 2011.

MedicalLiability Mutual saidupon announcing that divestiture that it would maximize the value of Princeton forits policyholders and allow the company to focus entirely on its commitment to NewYork healthcare providers. The deal provided"cash inflow" to the seller of more than $440 million.

In agreeingto the sponsored demutualization and sale, Medical Liability Mutual said becomingpart of a large organization would provide policyholders "an even higher levelof financial security" and the opportunity to expand product offerings throughmore customized policy limits; risk-sharing features; and services to groups, facilitiesand other large accounts.