A Sept. 14 policyholder vote on the mutual-to-stock conversion of Medical Liability Mutual Insurance Co. is the last major hurdle for a transaction intended to facilitate the $2.50 billion sale of New York's largest medical professional liability insurer to Berkshire Hathaway Inc.
Despite limited but vocal concerns raised by at least two groups of current and former policyholders, New York Financial Services Superintendent Maria Vullo on Sept. 6 approved the conversion and sale, and said she would separately sign off on proposed reinsurance arrangements between Medical Liability Mutual and Berkshire's National Indemnity Co.
As Vullo noted in signing off on the transaction, an "overwhelming number" of interested parties who submitted public comment on the deal did so in support, including the Medical Society of the State of New York and the state's two large hospital associations. She also voiced support for the fairness opinion and valuation analysis conducted on the state's behalf by Ernst & Young Investment Advisers LLP.
Vullo said the Ernst & Young findings "fully support the conclusion that the transaction is fair and equitable" and wrote that she has no reason to question the firm's conclusions.
Not only does Medical Liability Mutual's most recent statutory financial statement support the position that the transaction is fair and equitable, there is also no evidence that any other company would be willing to offer more than what National Indemnity agreed to pay for the company, Vullo said.
The regulator applied several conditions to her approvals, including provisions that limit Medical Liability Mutual from paying special compensation related to the conversion and sale and preclude the company's re-domestication or the relocation of its principal offices to another state for a period of 10 years.
Deal proponents who submitted public comments or participated in a recent public hearing argued that the conversion and sale would provide Medical Liability Mutual and its customers with better access to capital, increased scope of product offerings, reinsurance support and a partnership with a higher-rated insurer. Critics complained about what they considered a lack of transparency by Medical Liability Mutual in pursuing and structuring the transaction.
Neurological Surgery PC sought revisions to the terms of the deal's consideration or, alternatively, a settlement with the company. The organization claimed to have ranked as Medical Liability Mutual's largest policyholder group prior to placing their business elsewhere in 2014 due to concerns about "overpriced" premiums. Despite allegedly making significant contributions to Medical Liability Mutual's profits over a long period, the organization claimed that it stands to be "severely under-compensated" relative to others as the deal terms base the amount of payment on premiums paid over a three-year eligibility period that ended in July 2016.
The organization said it would not have taken its business elsewhere had it known that Medical Liability Mutual would ultimately agree to a sale or to pay out a lump-sum policyholder dividend that would lead to a return of "enormous accumulated" funds.
Additionally, the organization urged the New York regulator to promote competition in the marketplace by facilitating the entry of additional competitors. The combination with Berkshire will provide Medical Liability Mutual with "more resources to dominate the market," where the company already enjoyed 39% share of the physicians and surgeons professional liability premiums written during the trailing-12-month period ended June 30.
In addition to the concerns voiced in public comments to the New York regulator, three Medical Liability Mutual policyholders in August filed a lawsuit seeking class-action status on behalf of themselves and similarly situated New York physicians. The complaint accused Medical Liability Mutual's directors of breaches of fiduciary duty in allegedly conducting "a flawed and inadequate process, undertaken in secret and without participation by representatives of the policyholders' interests." It also alleged that the company and its officers and directors violated New York general business law for allegedly compiling a "false and misleading" information statement for the purpose of soliciting policyholder votes.
Medical Liability Mutual has denied the policyholders' claims, saying that the complaint includes "numerous factual inaccuracies," reflects a "general misunderstanding" of New York insurance law, and amounts to "an impermissible attack" on the state regulator in light of the approval process that was conducted.
New York insurance law requires that two-thirds of the votes cast by eligible policyholders must be in support of the plan. None of the transactions will go forward in the absence of an affirmative policyholder vote; the agreement currently has a termination date of Sept. 30.
The complaint, which was filed in Kings County, N.Y., Superior Court, seeks to enjoin Medical Liability Mutual from holding the vote and to recover an unspecified amount of damages. The company has vowed a vigorous defense.