Applied Underwriters Sold to Founder in $920M Deal

October 16, 2019

Applied Underwriters Inc. and its subsidiary North American Casualty Co. has reportedly been acquired by Applied Underwriters founder Steve Menzies, who was joined in the acquisition by the Quasha Group led by Quadrant Management.

The deal is valued at $920 million, and included the buyout of all other shareholders, including the 81% of the 25-year old company’s stock held by Berkshire Hathaway Inc., according to an announcement released by an Omaha communications firm on behalf of Berkshire.

Quadrant Management, a New York-based investment management firm headed by CEO Alan Quasha, acquired the services companies of Applied.

Applied is a national provider of workers’ compensation insurance, other lines of commercial insurance, and risk transfer and financing plans. The company is headquartered in Omaha, Neb., and currently employs 800 people throughout the U.S.

It was reported in July that Applied was being sold in a large acquisition, in a deal likely involving Cayman Islands-based United Insurance Co.

Efforts to sell Applied appear to have started earlier this year due to a channel conflict, which was made known when Berkshire Hathaway Chairman Warren Buffett told CNBC that Applied is a smaller firm that has to compete against two larger insurance companies Berkshire owns that also sell workers’ comp coverage. Applied provides workers’ comp and services to small and medium-sized enterprises.

Applied has been tangled up in a mess with California Insurance Commissioner Ricardo Lara. The commissioner has been under fire for taking campaign contributions from the insurance industry, despite his pledge not to do so, and allegations that he made first contact with an agent of Applied offering political support in conjunction with seeking approval for a change of control in the company.

Menzies was named in a writ of administrative mandamus filed in August in San Francisco Superior Court by Oceanside Laundry LLC and RDR Builders Inc. seeking judicial review of the Lara’s actions in two cases in which the companies claim he violated their rights.

The writ is part of an effort to overturn decisions by Lara in cases involving Applied Underwriters, alleging the decisions by Lara were swayed by contributions to his campaign from people affiliated with Applied.

CDI spokespersons have been reached out to for comment on the reported sale. A spokesman for Applied has also been reached out to for comment.

“I have been pleased to have had Berkshire as a partner these many years, but the growth in Berkshire’s other primary insurance operations has created increasing channel conflicts for Applied,” Menzies said in a prepared statement issued by the Omaha communications firm. “The transaction will now allow Applied to expand with no concerns for channel conflicts. The future for Applied is very bright, as construction on our new Omaha operations center at Heartwood Preserve proceeds apace and as our financial results deliver consistent profits and excellent coverage for our clients and their employees.”

Applied was founded in 1994 by Menzies. In 2005, Berkshire Hathaway took an interest in the company and acquired an 81% share.

In June, Insurance Journal reported that the pending sale of Applied was under review by various state insurance departments.

Jeffrey Silver, Applied Underwriters’ general counsel, confirmed that channel conflict was the reason for the sale with Insurance Journal in February, while also noting that Berkshire has doubled its own workers’ compensation writings, excluding Applied Underwriters, since 2012.

“This sale will eliminate that inherent competition that occurred between the Berkshire-owned entities,” Silver said at that time.

He also said the sale was expected to close in the third quarter but offered no information on a buyer or buyers at the time.

In July, Applied settled a long-running dispute with New York regulators, a step deemed important to finalizing the sale.

Applied subsidiaries include California Insurance Co., Continental Indemnity Co., Pennsylvania Insurance Co., Illinois insurance Co. and Texas Insurance Co. that are collectively known as North American Casualty Co.

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