A subsidiary of Berkshire Hathaway has agreed to acquire New York's largest medical malpractice insurer in a deal that could have wide-ranging effects on doctors, hospitals and dentists statewide.
The Omaha, Nebraska-based National Indemnity Company said today it will purchase the Medical Liability Mutual Insurance Company, converting the malpractice insurer to a company owned by shareholders, rather than policyholders.
The acquisition price was not disclosed as part of the joint announcement. MLMIC's policyholders—which include New York hospitals, doctors and dentists—would receive payouts in exchange for the conversion of the company from a mutual company to a stock company. Buffett, the world's third-richest person according to Forbes, praised MLMIC in a joint announcement of the acquisition.
“MLMIC is 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,” he said in a statement. “We welcome the chance to add them to the Berkshire Hathaway family and enhance their capacity to serve these and other policyholders for many years to come.”
Founded in 1975, Manhattan-based MLMIC insures 15,000 physicians, 4,000 dentists and several dozen hospitals, according to its website. In 2015, MLMIC reported a net underwriting gain of $61 million. At the end of 2015, MLMIC's balance sheet showed assets exceeded liabilities, resulting in a $1.8 billion policyholders' surplus.
As part of the transaction, MLMIC's 20,000 policyholders will receive a distribution of whatever surplus exists at the time of closing. The deal is subject to regulatory approval from the New York State Department of Financial Services, which will likely take more than a year, said Ed Amsler, a vice president at MLMIC.
Though it's difficult to estimate the size of each individual payout, policyholders are expected to receive a distribution that is “approximately equal” to the premiums paid to MLMIC during the three-year period, ending July 14, 2016, according to information posted to the insurer's website.
MLMIC's major competitor, New York's second-largest malpractice insurer Physicians' Reciprocal Insurers, has faced financial and legal troubles. In 2015, Physicians' Reciprocal's balance sheet showed a growing deficit, with liabilities exceeding assets by $138 million. In addition, the company's chief executive Anthony Bonomo was called in as a witness in the corruption trial of former Senate Majority Leader Dean Skelos, the Albany Times Union reported in April. With those difficulties hobbling its closest competitor, MLMIC became an even more attractive takeover target.
MLMIC said the deal will provide the insurer with Berkshire Hathaway's industry expertise, an ability to expand existing product lines and a stronger financial backing to ensure payment of malpractice claims.
“The arrangement with Berkshire Hathaway will bring policyholders further peace of mind, knowing MLMIC will be able to offer an even higher level of financial security,” Dr. Robert Menotti, MLMIC's president, said in a statement.
Keefe Bruyette & Woods, a Manhattan investment banking firm, served as financial adviser to MLMIC, while Manhattan law firm Wilkie Farr & Gallagher provided legal counsel.
"Warren Buffett's Berkshire Hathaway subsidiary to acquire largest New York medical malpractice insurer" originally appeared in Crain's New York Business.