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Medical Liability Mutual's Berkshire-sponsored demutualization has recent precedent

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Medical Liability Mutual's Berkshire-sponsored demutualization has recent precedent

The lengthof time Berkshire Hathaway Inc.projected it would take National IndemnityCo. to complete its acquisitionof the stock successor to MedicalLiability Mutual Insurance Co. drew a quip from Warren Buffett.

"Goodthings are worth waiting for," he said as the companies disclosed that theirdeal would not close until the third quarter of 2017.

The hurdlesthe transaction will face include a New York Department of Financial Services publichearing and Medical Liability Mutual policyholder meeting and vote, in additionto the customary conditions associated with insurance deals, likely producing alonger timeline than Berkshire typically experiences when executing acquisitionsin the sector.

In thelast instance of a sizable New York-domiciled mutual converting to a stock companyin connection with a prospective sale, it took 616 days between Prosperity LifeInsurance Group LLC's Jan. 30, 2013, announcement of its agreement to acquire the former via a sponsored demutualization and the deal's completion Oct. 8, 2014.

The partiesto that deal initially said that they expected it to close in the third quarterof 2013, but the SBLI USA board did not formally adopt the associated reorganizationplan until July 8, 2014. The public hearing occurred approximately six weeks later.Several policyholders submitted testimony to the New York Department of FinancialServices in opposition to the transaction, arguing that the deal did not provideadequate consideration in exchange for their ownership interests in the mutual.

Separatesections of Article 73 of the New York Insurance Law address conversions by mutuallife and property and casualty insurers into stock companies. The law requires theNew York State Superintendent of Financial Services to approve those transactionsto the extent she finds them to be fair, equitable, and in the best interests ofpolicyholders and the public. In the SBLI USA example, the regulator ultimatelyconcluded in a 41-pagedecision that the $36 million in consideration Prosperity Life planned to distributewas fair and equitable.

Otherrecent examples of sponsored demutualizations in different states exhibited shortertimes to close. AmTrust FinancialServices Inc. completedits purchase of ARI Insurance Co.,the stock successor to ARI Mutual Insurance Co., 310 days after the transactionwas announced. National General HoldingsCorp. has said it expected to close its purchase of the successor to as announcedJan. 27 by the third quarter. The Illinois Department of Insurancedoes not plan to convene a public hearing on that demutualization.

Berkshire'ssix most recent acquisitions of U.S.-based insurance companies or groups averaged90 days from announcement to closing. Only one of those transactions, the August2014 purchase ofOptimum Property & Casualty Insurance Co., took as long as four months to close.In that case, the parties announced the deal March 14, 2014, approximately six weeksafter they entered a stock purchase agreement, and then closed the transaction Aug.20, 2014.

Berkshire'smost recent acquisition of an insurance company, the purchase of PLICO Inc., took 55 days from announcement to completion.

Berkshirepreviously completed the acquisitionof control of a Texas county mutual when GovernmentEmployees Insurance Co. obtained an assignment of the agreement to managethe former Fireman's Fund County Mutual Insurance Co.

RenamedGEICO County Mutual Insurance Co.under GEICO's management, it primarily writes standard and preferred auto businessin Texas. It is party to a quota-share reinsurance agreement with several GEICOaffiliates and it transfers its net income to GEICO as payment of a management fee.The stock company also held voting proxy for 83.1% of the county mutual's policyholdersas of Dec. 31, 2015.

The was dated Oct.21, 2013. The deal closed 73 days later on Jan. 2, 2014.

Buffetthas had to exhibit some patience in the past for non-insurance acquisitions to close,however. Berkshire did not complete the acquisition of Proctor & Gamble Co.'s Duracell batterybusiness, for example, until 473 days after its Nov. 14, 2014, announcement.