The California Department of Insurance has denied Applied Underwriters Inc..'s application that sought approval for a change in control of subsidiary California Insurance Co.
The insurance department said it rejected the request after Applied Underwriters allegedly tried to merge California Insurance into a newly formed New Mexico-domiciled entity without prior regulatory approval.
In a letter to Applied Underwriters' General Counsel Jeffrey Silver, an attorney in California Insurance Commissioner Ricardo Lara's office said that providing notice of a change in control filing submitted in New Mexico does not mean the company no longer has to comply with California law, nor does it bypass the state regulator's ability to approve the planned intercompany merger. The letter indicated that the California regulator considers the Form A filed in the Golden State to be "materially deficient" for multiple reasons, including failing to disclose the plan to redomicile California Insurance Co.
Applied Underwriters on Oct. 16 announced that its founder, Steve Menzies, acquired the company in a deal valued at $920 million. The transaction included the buyout of an 81% stake held by Berkshire Hathaway Inc.
The regulator said it would terminate California Insurance Co.'s certificate of authority to do business in the state if the proposed intercompany merger closes without regulatory approval. No policyholder would lose coverage if the regulator takes such action. The insurance department in a statement said it would take "all necessary steps" to protect policyholders, including examining "additional enforcement remedies."
California Insurance Co. was responsible for all of the business Applied Underwriters wrote in California in 2018. Applied Underwriters generated 41.20% of its total 2018 direct written premiums in California.