1. What is occurring?

MLMIC, as a mutual insurance company, is currently owned by its policyholders. Policyholders’ ownership interests in MLMIC are known as “Policyholder Membership Interests.” These Policyholder Membership Interests include the right to vote on matters submitted to a vote of members (such as the election of directors) and the right to participate in any distribution of surplus, earnings and profits.

Demutualization is the process by which a mutual insurance company converts from a company that is owned by its policyholders into a stock insurance company that is owned by its shareholders. In a sponsored demutualization, the stock of the converted mutual is acquired by a sponsor. National Indemnity Company (“Sponsor”), a subsidiary of Berkshire Hathaway Inc., is the sponsor of the proposed demutualization of MLMIC. If the proposed demutualization of MLMIC is approved by both policyholders and the New York State Department of Financial Services (the “Department”), and the conditions are satisfied or waived in accordance with the Plan of Conversion and the acquisition agreement, all Policyholder Membership Interests will be extinguished, and Sponsor will become the sole owner of MLMIC. We refer to the proposed conversion and the acquisition together as the “proposed transaction.”

2. Why is MLMIC entering into the proposed transaction?

After careful deliberation, the Board of Directors of MLMIC approved becoming a wholly owned subsidiary of the Sponsor following the completion of the proposed transaction, and thereby becoming a member of the Berkshire Hathaway group of companies (the “Berkshire Hathaway Group”) because, among other things:
  • the opportunity of the owners of eligible policies to monetize their Policyholder Membership Interests;
  • an affiliation with the Berkshire Hathaway group of insurance companies will help ensure the ability of the policyholders of policies that are in effect to continue to receive the same quality insurance protection that they have received with MLMIC;
  • such affiliation will help ensure the continuity of MLMIC’s medical professional liability insurance and other business and will enhance the competitiveness of MLMIC;
  • MLMIC will become a member of a group that includes other insurers that specialize in providing liability insurance coverage to healthcare providers. The affiliation will provide additional healthcare contacts and insights for MLMIC;
  • such affiliation will enhance MLMIC’s financial strength and will provide MLMIC with greater resources to back its obligations to policyholders and to underwrite additional business; and
  • such affiliation will provide MLMIC with increased flexibility to support the growth of existing product lines.

3. Why is Berkshire Hathaway interested in acquiring MLMIC?

Berkshire Hathaway values MLMIC’s operations, Board of Directors, staff and endorsed partners and is committed to MLMIC’s future success and its dedication to serving policyholders. Berkshire Hathaway’s CEO Warren Buffett said, “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. 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.”

4. Will MLMIC get a rating from A.M. Best?

MLMIC is currently not rated by A.M. Best but will seek a rating from them once the transaction closes. National Indemnity Company is rated A++ by A.M. Best.

5. Will policyholders receive a payout?

Once the transaction is completed, each owner of an eligible policy (or, if applicable, its designated Policy Administrator or designated Employer on an Employee Professional Liability Insurance Policy) will be entitled to receive a proportionate share of all of the cash consideration paid by National Indemnity Company. As required under the New York Insurance Law, proportionate shares will be determined by dividing the premium earned on each eligible policy from July 15, 2013 through July 14, 2016, by the total premium earned for all eligible policyholders during that period. Such proportionate share will then be multiplied by the amount of total cash consideration received from National Indemnity Company to determine the amount of cash allocable to such eligible policyholder. We currently estimate each owner’s cash entitlement will be approximately equal to the sum of the premiums earned on the applicable eligible policy during such three-year period. Please note that this is an estimate only and that the actual amount will be determined as of closing and in accordance with the Plan of Conversion and applicable New York insurance law and regulatory requirements. Policies issued with an effective date on or after July 15, 2016, will not be eligible for this cash payout.

6. Is the receipt of cash consideration taxable?

The receipt of cash consideration in connection with the proposed transaction will be a taxable transaction for U.S. federal income tax purposes.

7. Will any MLMIC director, officer or staff member receive a payout?

No MLMIC director, officer or staff member will receive any of the cash consideration payout from National Indemnity Company in connection with the proposed transaction other than any proportionate share such person is entitled to receive in their capacity as an eligible policyholder.

8. Will policyholders continue to be owners of MLMIC?

Following the conversion from a mutual to a stock company (and subsequent acquisition by Sponsor), policyholders will no longer have an ownership interest in MLMIC and all Policyholder Membership Interests will be extinguished.

9. How will the demutualization and acquisition affect my insurance policy?

Policyholders will see no change in MLMIC’s operations and commitment to policyholder-first service. Consummation of the sponsored demutualization will not increase premiums or reduce the coverage under your Policy.

10. Will policyholders continue to receive dividends?

After the proposed transaction is completed, policyholders will no longer have an ownership interest in MLMIC and, as such, will generally not receive any dividends.

11. What will happen to MLMIC rates?

MLMIC will remain a licensed insurer of New York State, regulated by the Department. Premium rates for physicians will continue to be set by the Department. Premium rates for hospitals, dentists, mid-level providers and other lines of business will continue to be approved by the Department.

12. If I have a claim, what will happen?

There will be no change in our claim handling, operations or philosophy of providing a strong defense against claims brought against our policyholders.

13. What are the next steps?

On February 23, 2018, MLMIC and the Sponsor agreed to an acquisition price of approximately $2.5 billion and signed an amended acquisition agreement to reflect the purchase price and closing procedures. The parties currently expect this acquisition will be completed in the third quarter of 2018.

The transaction is on track and progressing forward in accordance with the measures and actions required under New York Insurance Law Section 7307 (NYIL §7307), designed to protect “the interests of the policyholders and the public.”

Policyholders can expect several major milestones to occur between now and the expected close of the transaction.

The estimated timeline for these milestones is currently as follows:

1. In accordance with NYIL §7307, MLMIC was examined by the NYS Department of Financial Services (“DFS”) to assess the financial condition of the Company. That examination was completed during the fourth quarter of 2017.

2. In accordance with NYIL §7307, the DFS will also conduct an independent valuation of the Company to assess the fairness of the cash consideration to be paid by Berkshire to owners of eligible MLMIC policies (or, if applicable, their designated Policy Administrators or designated Employers on Employee Professional Liability Insurance Policies) from July 15, 2013 through July 14, 2016. This valuation has yet to be completed.

3. In accordance with NYIL §7307, once the examination and independent valuation are done, MLMIC’s Board of Directors will request permission from the Superintendent to submit a Plan of Conversion for approval by DFS. MLMIC will then prepare and disseminate detailed information regarding the Plan of Conversion to all of those who are owners of eligible policies on this proposed transaction. The Superintendent will then hold a public hearing regarding the Plan of Conversion. Following this hearing, the Superintendent will review the Plan of Conversion and the proposed transaction, and if approved, will authorize MLMIC to conduct a vote.

4. In accordance with NYIL §7307, to approve the proposed transaction, MLMIC will need approval by at least two-thirds of the votes cast by those policyholders entitled to vote. If approved, the proposed transaction will close and Berkshire will authorize distribution of payments shortly thereafter.

In the meantime, MLMIC will continue to provide the policyholder-first service it has delivered to healthcare providers in New York State for over 40 years.

Information updated as of 02/26/2018.