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Berkshire Hathaway subsidiary National Indemnity Company has announced that it has agreed to buy Medical Liability Mutual Insurance Company (MLMIC). Terms of the deal were not made public. Warren Buffett’s admiration of MLMIC was clear as he called it, “a gem of a company that has protected New York’s physicians, mid-level providers, hospitals and dentists like no other for over 40 years.”
This acquisition continues Berkshire Hathaway’s more than decade-long pursuit of high-quality medical professional liability (MPL) insurers. Berkshire Hathaway also purchased Medical Protective in 2005 and Princeton Insurance Company, a MLMIC subsidiary that is the leading MPL insurer in New Jersey, in 2011. Berkshire Hathaway purchased PLICO, the leading MPL writer in Oklahoma, in 2015. The MLMIC acquisition further strengthens Berkshire Hathaway’s position as the leading MPL insurer in the U.S., increasing its market share to over 15%.
Because MLMIC is organized as a mutual insurance company, the demutualization of the company will be a key element of the transaction – resulting in distributions to more than 20,000 eligible policyholders. According to estimates on the MLMIC website, distributions are estimated to be, “approximately equal to the premiums paid to MLMIC during the three-year period ending June 30, 2016.” Both the demutualization plan and the acquisition will be subject to review by the New York Department of Financial Services’ Insurance Division.
This announcement stands in stark contrast to the recent challenges faced by MLMIC’s largest competitor in New York, Physicians’ Reciprocal Insurers (PRI). PRI
booked negative surplus as of year-end 2015, had involvement in a recent
corruption trial related to NY Senate majority leader Dean Skelos, and endured
a failed acquisition by The Doctors Company that was pulled off the table in
The MLMIC announcement
is also a notable continuation of a sustained period of MPL industry
consolidation and diversification. MLMIC president Robert Menotti, MD seemed to
foresee some of these opportunities for MLMIC when he expressed that “MLMIC
will be able to expand its offerings, with more customized policy limits,
risk-sharing features and services for groups, facilities and other large
insurers have all made significant acquisitions during the past five years. The
Doctors Company (First Professionals, Utah Medical, Advocate MD,
Anesthesiologists Professional, Intermed, Medical Advantage), Norcal (FD
Insurance, Medicus, PMSLIC), Coverys (Preferred Professional, Academic Medical Professionals
RRG, ELM Exchange), and Pro Assurance (Independent Nevada Doctors, Medmarc,
Eastern Alliance Group) have all contributed to MPL insurance industry
consolidation. These acquisitions have led to not only top line premium
increases but to geographic expansion and product diversification. This trend
has been driven by a soft pricing environment, favorable loss experience and claims
frequency trends, and significant levels of industry capitalization.
to MLMIC, Warren Buffett stated that, “good things are worth waiting for.” Is
the current market consolidation a good thing? We’ll just have to wait and see.
Rob Walling is a Principal and Consulting Actuary with Pinnacle Actuarial Resources, Inc. and has been in the insurance industry since 1989, consulting since 1997. He is focused on commercial lines ratemaking and product development, actuarial studies for captives and self-insureds, commercial lines loss reserving, legislative costing, litigation support, regulatory consulting and expert testimony. Mr. Walling is a Fellow of the Casualty Actuarial Society (CAS), a Member of the American Academy of Actuaries and a Chartered Enterprise Risk Analyst. He currently serves as a member of the CAS Board of Directors. He has previously served as the Chairman of the CAS Ratemaking Seminar Committee, Risk and Capital Management Seminar Committee, and the New Fellows Committee. Mr. Walling is a frequent speaker at industry meetings on professionalism, predictive analytics, captives and alternative markets, medical professional liability and government insurance program topics.
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