1. What is occurring?
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?
- the opportunity for eligible policyholders to monetize their Policyholder Membership Interests;
- an affiliation with Berkshire Hathaway Inc. 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?
4. Will MLMIC get a rating from A.M. Best?
5. Will policyholders receive a payout?
Once the transaction is completed, each eligible policyholder will be entitled to receive a proportionate share of the cash consideration paid by the Sponsor. As required under the New York Insurance Law, proportionate shares will be determined by dividing the premiums properly and timely paid on each eligible policy and allocable to the period from July 15, 2013 through July 14, 2016 by the total premium for all eligible policyholders for that period. Such proportionate share will then be multiplied by the amount of total cash consideration received from the Sponsor to determine the amount of cash allocable to such eligible policyholder. We currently estimate each eligible policyholder’s cash allocation will be approximately equal to 1.9 times the sum of the premiums allocable to the applicable eligible policy during such three-year period. Policies issued with an effective date on or after July 15, 2016, will not be eligible for this cash payout.
An eligible policyholder may designate another party (such as a Policy Administrator or an Employer on an Employee Professional Liability Insurance Policy) to receive that policyholder’s share of the cash consideration by timely completing and returning to MLMIC a designation form. If an eligible policyholder has a Policy Administrator or an Employer on an Employee Professional Liability Insurance Policy, MLMIC will be providing a designation form to that policyholder. Previous appointments of designees by policyholders for certain purposes (such as submitting premium payments or receiving dividends on the policyholder’s behalf) are not valid for this purpose.
6. Is the receipt of cash consideration taxable?
7. Will any MLMIC director, officer or staff member receive a payout?
8. Will policyholders continue to be owners of MLMIC?
9. How will the demutualization and acquisition affect my insurance policy?
10. Will policyholders continue to receive dividends?
11. What will happen to MLMIC rates?
12. If I have a claim, what will happen?
13. What are the next steps?
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 by September 30, 2018:
- 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.
- In accordance with NYIL §7307, the Department had an independent appraisal of the Company’s fair market value conducted as of March 23, 2018. This appraisal was completed on May 18, 2018.
- The proposed transaction was reviewed by the Department of Justice and the Federal Trade Commission. The review was completed on May 24, 2018.
- In accordance with NYIL §7307, MLMIC requested permission from the Superintendent to submit a Plan of Conversion to the Department. The Superintendent granted such permission on May 22, 2018. On May 31, 2018, MLMIC’s Board of Directors unanimously approved a Plan of Conversion. On June 15, 2018, MLMIC revised the Plan of Conversion and submitted it to the Department for approval. A digital version of the Plan of Conversion can be found here.
- In accordance with NYIL §7307, MLMIC was examined by the Department to assess the financial condition of the Company. That examination was completed on June 1, 2018.
- In accordance with NYIL §7307, MLMIC will mail a Policyholder Information Statement, including the Plan of Conversion, to policyholders entitled to vote on the Plan of Conversion at a special meeting. These policyholders are referred to as Record Date Policyholders in the Plan of Conversion.
- In accordance with NYIL §7307, the Superintendent will hold a public hearing regarding the Plan of Conversion on August 23, 2018. The public hearing will be held at the offices of the New York State Department of Financial Services, One State Street, New York, NY 10004, at 10 A.M. Eastern Time. A digital version of the Notice of Public Hearing can be found here. Following this hearing, the Superintendent will review the Plan of Conversion and the proposed transaction, and if so approved, will authorize MLMIC to conduct a vote of Record Date Policyholders on the Plan of Conversion at a special meeting. The special meeting is scheduled to be held on September 14, 2018 at MLMIC’s headquarters at Two Park Avenue, New York, NY, 10016, beginning at 10 A.M. Eastern Time.
- In accordance with NYIL §7307, to approve the Plan of Conversion, MLMIC will need a quorum at the special meeting (in person or by proxy) of at least 10% of Record Date Policyholders on the Plan of Conversion and approval by at least two-thirds of the votes cast by those Record Date Policyholders. If the Plan of Conversion is approved by such policyholders and the Plan of Conversion and proposed transaction are approved by the Superintendent, the proposed transaction will close and the Sponsor 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 06/21/2018.