Category: National indemnity

(BRK.A), (BRK.B)

As part of ongoing efforts to support our dedicated physicians throughout New York, Berkshire Hathaway’s MLMIC Insurance Company is extending medical professional liability coverage – without requiring any new premium – to retired physicians who were last insured with MLMIC and are coming back as volunteers to provide care during the COVID-19 pandemic.

MLMIC defines “volunteer,” in this case, as a retired physician providing professional services for no fee, salary or other compensation with the exception of reimbursement for expenses incurred delivering those services. Qualifying physicians may apply online.

The coverage limits of the medical professional liability offered to these volunteers will be the same as what they held when actively practicing prior to retirement and when last insured by MLMIC. Coverage also includes defense costs if a claim is filed against them while volunteering.

In addition, if the returning physician previously held regulatory defense coverage, it will be provided for actions resulting from volunteer professional services. There is no new premium for this coverage, which is included through physicians’ expired policies without impact upon any presently existing tail policies.

New York physicians can access this information at https://www.mlmic.com/covid-19/returning-physicians. To request coverage, interested volunteers can apply online or call (800) ASK-MLMIC (1-800-275-6564) and ask for Underwriting.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Berkshire Hathaway is investing in South Australia, the conglomerate is taking over the Motor Accident Commission’s ‘back book’ of Compulsory Third Party (CTP) vehicle insurance claims.

The South Australia treasurer, Rob Lucas, said Berkshire Hathaway would establish operations in Adelaide as its Reinsurance Division takes over management of the Motor Accident Commission’s ‘back book’ of Compulsory Third Party (CTP) vehicle insurance claims.

Lucas said the move – to take effect from January 1, next year – was a natural consequence of the former Labor government’s decision in 2014 to privatize the provision of CTP vehicle insurance in SA and would put the state on the map with global investors.

“This is a significant coup for South Australia,’’ said Treasurer Lucas.

“Having an investment company of Berkshire Hathaway’s global standing come and set up in Adelaide not only speaks volumes for our sound business environment, but for the progressive leadership of the new Liberal government under Premier Steven Marshall.

“Berkshire Hathaway’s reinsurance arm, National Indemnity Company, is the only reinsurance company in the world with the same AA+ credit rating as South Australia, offering SA policy claimants security over future claims, as well as excellent value for taxpayers who no longer bear the risk of movements in investments and claims outcomes.

“For example, this year’s Mid-Year Budget Review will include a significant reduction in returns to the budget from MAC.

“Put simply, assets and liabilities from MAC will be transferred to Berkshire Hathaway’s National Indemnity Company, so that all the risks of managing MAC’s liabilities will be transferred to Berkshire Hathaway.

“Part of the arrangement will see $300 million of the reinsurance premium retained in South Australia – with at least $100 million retained for five years – for local funds management.

“The Government will consider a range of options to help implement a key election commitment to grow local funds management activity.”

Berkshire Hathaway CEO and Chairman Warren Buffett said he looked forward to the potential of growing his business in South Australia.

“We are thrilled to have agreed terms with South Australia to reinsure their auto liabilities, and we would love to find more opportunities to do business there,” Buffett said.

Berkshire Hathaway Inc. also has significant worldwide interests in energy, utilities, infrastructure, rail, retail and manufacture.

In October, the State Government announced it would wind down the Motor Accident Commission, a ‘natural consequence’ of the former Labor Government’s decision in 2014 to privatize the provision of CTP vehicle insurance in SA – which had been MAC’s core function.

MAC ceased writing new CTP insurance policies from July 1, 2016 but has remained responsible for managing a ‘back book’ of claims issued up to and including June 30, 2016.

The MAC Board has approved acceptance of the Berkshire Hathaway bid.

Background

The former Labor government, in September 2014, approved a new framework to assess unsolicited proposals to government.

Under this framework, and just prior to the state election, Berkshire Hathaway submitted an unsolicited proposal to the former Labor government to manage the ‘MAC back book’. This bid was only valid for an off-market exclusive transaction.

Treasury engaged respected financial advisory firm Moelis who concluded the proposal was unique and presented as value for money. Moelis recommended approval for the proposal and concluded Berkshire Hathaway’s history supported the conclusion that the Berkshire Hathaway bid was only valid for an off-market exclusive transaction.

The existing Allianz claims management contract will remain in place at least until its current expiry of June 30, 2019. Berkshire Hathaway will explore with Allianz long-term arrangements. Claimants will not experience any change in their claims management experience.

After the deal is concluded, budgeted returns from MAC to the budget will reduce by up to an estimated $68 million over the 3-year period from 2019-20.

Early next year, the Government intends to release most of the contractual documentation with some commercially confidential provisions redacted.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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American International Group, Inc. (AIG) has entered into a binding term sheet for an adverse development reinsurance agreement, effective January 1, 2016, with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc.

The agreement covers 80% of substantially all of AIG’s U.S. Commercial long-tail exposures for accident years 2015 and prior, which includes the largest part of AIG’s U.S. casualty exposures during that period. AIG will retain sole authority to handle and resolve claims, and NICO has various access, association and consultation rights.

“This decisive step enables us to focus firmly on the future and build on the progress we’ve made in transforming AIG,” said Peter D. Hancock, AIG President and Chief Executive Officer. “The agreement supports our stated strategy and gives us additional risk capacity to serve our clients and return capital to shareholders.”

The consideration for this agreement is $9.8 billion payable in full by June 30, 2017, with interest at 4% per annum from January 1, 2016 to date of payment. The consideration paid to NICO will be placed into a collateral trust account as security for NICO’s claim payment obligations to the AIG operating subsidiaries, and Berkshire Hathaway will provide a parental guarantee to secure the obligations of NICO under the agreement.

NICO is assuming 80% of the net losses and net allocated loss adjustment expenses on the subject reserves in excess of the first $25 billion and NICO’s overall limit of liability under the agreement is $20 billion. This provides material protection to policyholders against adverse developments beyond current reserve levels.

AIG’s fourth quarter reserve review is being finalized and the results of this review will be included in the company’s year-end financial results. AIG currently expects a material prior year adverse development charge in the fourth quarter.

The agreement will be accounted for in the first quarter of 2017 as a retroactive reinsurance agreement. AIG will recognize a loss or a deferred gain at inception of the agreement equal to the difference between the consideration paid and the ceded reserves as of December 31, 2016. Had this agreement been entered into on January 1, 2016, AIG would have recognized a loss of approximately $2.9 billion, based on carried reserves of approximately $34 billion, net of discount at that time. This loss would be reduced by AIG’s expected reinsurance recoveries from NICO’s 80% share of any 2016 calendar year adverse prior year development covered by the contract. If that share exceeds $2.9 billion, then a deferred gain is established, which will be amortized into the income statement in line with expected cash reinsurance recoveries from NICO.

The closing of the transaction contemplated by this agreement is subject to receipt of any required regulatory approvals, execution of definitive transaction documentation and satisfaction of other conditions.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Berkshire Hathaway’s National Indemnity Company will provide up to $1.5 billion in reinsurance coverage for insurer The Hartford to cover for asbestos liability losses.

Under the terms of the transaction, The Hartford will pay NICO a reinsurance premium of $650 million in exchange for an aggregate adverse development cover for A&E losses beyond Dec. 31, 2016, aggregate net carried reserves, up to a limit of $1.5 billion.

The reinsurance will cover adverse development on substantially all of the company’s A&E reserves, excluding those held by the company’s U.K. property and casualty run-off subsidiaries (under contract to be sold with a closing projected for the first quarter 2017), as well as other non-U.S. operations with less than $3 million in A&E reserves. NICO will provide a collateral trust account as security for NICO’s claim payment obligations to the Hartford Insurance Pool. Berkshire will guarantee certain payment and performance obligations of NICO. The Hartford will retain responsibility for claims handling and other administrative services, subject to certain conditions.

The Hartford expects to recognize an after-tax GAAP loss of $423 million in the fourth quarter of 2016 as a result of this transaction.

Over the longer term, ratings agency A.M. Best believes the reinsurance transaction is credit positive for The Hartford and its subsidiaries as it significantly reduces the uncertainty of the group’s legacy A&E liabilities and will enhance the group’s risk-adjusted capitalization. Near term, however, The Hartford’s ratings will not be affected as risk-adjusted capitalization was comfortably supportive of its ratings and the variability in performance due to the adverse development of the A&E liabilities was not viewed as a substantial negative credit factor.

Chief Financial Officer Beth Bombara of The Hartford notes the company is trying to reduce “uncertainty for investors and others about the ultimate cost of these policy liabilities.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

(BRK.A), (BRK.B)

If there is one thing Warren Buffett likes more than anything else it’s probably insurance float, and Berkshire Hathaway just acquired billions more of it.

Berkshire has announced that Medical Liability Mutual Insurance Company (“MLMIC”), the largest underwriter of medical professional liability insurance in New York, has entered into a definitive agreement, pending regulatory and policyholder approval, to be acquired by Berkshire’s National Indemnity Company, following the completion of the conversion of MLMIC to a stock company from a mutual company.

National Indemnity Company is a subsidiary of Berkshire Hathaway Inc., one of the world’s leading insurance organizations.

The transaction is expected to close in the third quarter of 2017, subject to customary closing conditions and regulatory approvals.

“Good things are worth waiting for,” said Berkshire Hathaway CEO Warren Buffett. “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.”

“We are delighted to partner with such a fine organization. MLMIC has always had strong standing and stability within the challenging New York insurance market, and 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. In addition, MLMIC will be able to expand its offerings, with more customized policy limits, risk-sharing features and services to groups, facilities and other large accounts,” said MLMIC President Robert Menotti, MD.

In a letter to policyholders, Menotti said, “Berkshire Hathaway values our operations, board, staff and endorsed partners. Most importantly, Berkshire Hathaway is committed to MLMIC’s future success and its ongoing dedication to serving policyholders.”

More Float for Berkshire

As of Dec. 31, 2015, MLMIC had a policyholder surplus of $1.8 billion giving Berkshire more of the insurance float that has played a key part in the conglomerate’s growth.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Berkshire Hathaway has set up a new insurance company specifically to sell insurance online to medium and large companies. The company, Berkshire Hathaway Direct Insurance Company (BHDIC), will utilize staffing and resources from Berkshire’s other insurance companies.

BHDIC will initially market workers’ compensation and business owners’ package policies.

Back office operations and investment management will be supported by affiliated Berkshire Hathaway companies. BHDIC’s risk management, including overall exposures, risk appetite and control systems, will be fully incorporated into National Indemnity Company’s (NICO) existing risk management program.

BHDIC was established using the shell of the American Centennial Insurance Company, which Berkshire took over in 2008.

Stable Ratings

Ratings agency A.M. Best has given the company an A++ rating and an issuer credit rating (ICR) of “aaa”.

A.M. Best based the ratings on BHDIC’s 90% quota share agreement with NICO, which has been rated “aaa” for the past 10 years.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

(BRK.A), (BRK.B)

Berkshire Hathaway’s new minority stake in the Australian insurer Insurance Australia Group Limited (IAG) includes non-dilution rights that have been approved by the Australian Securities Exchange (ASX).

Under a waiver granted by ASX, IAG has agreed to give non-dilution rights to Berkshire’s wholly-owned National Indemnity Company (NICO), granting the company the right to buy shares at the same price as other investors if there is an issuance of securities.

In June of 2015, Berkshire through NICO paid A$500 million (US$387.8 million) for 3.7% of IAG.

Under the terms of the agreement, IAG agreed to give NICO 20% of IAG’s premiums in exchange for paying 20% of its claims over the next 10 years, a move that right off the bat brings NICO $1.78 billion of premium annually.

The IAG waiver was one of twelve waivers granted by ASX in the past year. Other companies receiving waivers included Aurelia Metals, Clancy Exploration, and Ensogo Limited.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Berkshire Hathaway’s continued push into commercial insurance lines in the U. S. market is grabbing market share from smaller insurers.

According to a new report by Fitch Ratings, Berkshire Hathaway Homestate Companies (BHHC) was the 10th largest U.S. commercial lines insurer in 2014 based on direct premium volume, with direct premium reaching $5.6 billion through a combination of organic growth and acquisitions.

From Regional to National

Based in Omaha, Nebraska, BHHC was originally incorporated in 1970 as Cornhusker Casualty. In 1981, the company added the Insurance Company of Iowa–an affiliated Iowa-domiciled insurance company. Through further acquisitions it grew into eight separately managed regional insurance companies located across the United States, each with its own local underwriting and management presence in its respective territories–a core value BHHC continues to embody. In the late 1990s, as it gained a national presence, the remaining six companies began operating under the shared brand identity of Berkshire Hathaway Homestate Companies.

Fitch notes that Workers compensation insurance has been a big part of Berkshire’s growth in this area, with the company becoming the seventh largest U.S. writer in 2014.

An Impact on Smaller Insurers

Fitch also reported that Berkshire’s growth could impact smaller insurers.

“Diverse commercial business segments and substantial capital resources position BRK for further market share growth that could marginalize smaller commercial lines underwriters that have less favorable market position.”

Consistently Outperforming the Industry

Berkshire’s track record in commercial lines underwriting has been very positive, and Fitch took note of that fact.

“BRK’s commercial lines’ underwriting results have consistently outperformed the property/casualty industry and most peers and loss reserve experience is historically favorable. Maintaining underwriting profitability with a greatly expanded premium base in a competitive market environment may provide future challenges.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.