The growing drama behind the $920 million sale of Berkshire Hathaway-owned Applied Underwriters to its founder Steven Menzies got another voice added to the story.
The New Mexico Office of Superintendent of Insurance on Thursday said New Mexico facilitated the sale of Applied Underwriters by approving the creation of a new insurer and a merger of it with an existing Applied Underwriter California subsidiary in order to save jobs and protect policyholders.
The California Department of Insurance has argued that its approval of the sale is required because one of Applied’s subsidiaries, California Insurance Co., is domiciled in the state. Late last week California said that it had not approved the sale of Applied Underwriters, nor had it approved the re-domestication of the California subsidiary to New Mexico.
Applied Underwriters executives followed that up earlier this week by maintaining publicly that after six months they gave up waiting for California to act on their request for approval of the sale and instead took up another state, New Mexico, on its offer to expedite the transaction by moving its California subsidiary to that state.
The New Mexico OSI in its statement on Thursday said that its involvement has resulted in the creation of a New Mexico domestic insurer, California Insurance Co. II (CIC II), and the subsequent merger of the original California Insurance Co., a California insurer, into the newly formed New Mexico insurer.
That transaction facilitated the closing of the stock repurchase by Applied Underwriters of shares owned by Berkshire Hathaway, according to New Mexico.
Also, according to the New Mexico department, that stock repurchase is expected to result in the preservation of hundreds of insurance industry jobs and the re-domestication of three Iowa insurers in New Mexico.
“The original deadline for the stock repurchase to close was September 30, 2019. If that transaction failed to close, CIC would have been placed in runout; the dedicated insurance professionals employed by that company would lose their jobs; and thousands of policyholders would have needed to find replacement coverage,” the New Mexico department claims.
The statement notes that insurance regulators in Iowa and Hawaii approved the requested transfers, and the Texas Department of Insurance indicated that it would approve a transfer of control if the California department approved the transfer of control of CIC.
On Sept. 27, California informed Menzies that it could neither approve nor disapprove the requested transfer by the Sept. 30 closing date, according to the statement.
After he obtained a 10 day extension of the closing deadline, founder and buyer Steven Menzies formed CIC II, and applied to have that company licensed as a New Mexico domestic insurer. New Mexico officials say the application was submitted on Oct. 4, and it “obtained expedited, statutorily compliant review, including the required entrance examination conducted by a contracted examiner.”
New Mexico officials said that on Oct. 8 they approved CIC II’s application and issued a certificate of authority, then immediately thereafter, CIC II formally submitted its request for approval to merge CIC into CIC II. The New Mexico OSI held a public hearing the following day and quickly approved the deal, allowing Applied Underwriters to close the stock repurchase on Oct. 10.
“Consequently, CIC II is now well positioned to continue its insurance operations, maintain its staff, and protect its policyholders and claimants. OSI heartily welcomes this new company to our state and looks forward to a cooperative and dynamic relationship,” the New Mexico OSI statement reads.
Insurance Journal has asked the California Department of Insurance for comment.
The deal has been under scrutiny in California over a campaign contribution controversy. Insurance Commissioner Ricardo Lara has been under fire for taking campaign contributions from the insurance industry, despite his pledge not to do so, and there have been 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 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.
The San Diego Union Tribune reported last month that Eric Serna, a New Mexico lobbyist who more than a decade ago retired from the position of New Mexico’s insurance commissioner while under investigation, was also in meetings with Lara and insurance executives. One of those meetings included the proposed buyer and seller of Applied Underwriters. according to the Tribune.
California Insurance Co. was purchased in 2003 by Applied Underwriters with CDI approval. In 2006, Berkshire Hathaway bought an 81% interest in Applied, which was founded in California in 1994.
The recent buyback by Menzies and The Quasha Group was agreed between Berkshire Hathaway and Applied largely to free Applied’s companies from channel competition with other Berkshire Hathaway subsidiaries, according to the company.
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