Sierra Health Services to Sell Its Workers’ Comp Subsidiary

November 25, 2003

Sierra Health Services Inc. announced that it has reached a definitive agreement to sell its workers’ compensation subsidiary, California Indemnity Insurance Co. Inc. (CIIC) to Folksamerica Holdings Co. Inc. Folksamerica is a subsidiary of White Mountains Insurance Group, Ltd., a Bermuda-based insurance holding company. CIIC and its subsidiaries are engaged in writing workers’ compensation insurance in nine Western and Midwestern states. CIIC’s subsidiaries include Commercial Casualty Insurance Co., Sierra Insurance Co. of Texas and CII Insurance Co.

The deal, valued at $79.5 million, is expected to close in the first quarter of 2004, subject to regulatory approvals, including from applicable insurance regulatory authorities. At the closing, Sierra will receive $15.5 million in cash, subject to adjustment. The deal also includes a contingent payment of up to $64.0 million, payable to Sierra in January 2010. The contingent payment can be increased or decreased depending on favorable or adverse claim and expense development from the date of closing through Dec. 31, 2009, and other offsets based on certain customary agreements between the parties.

After the closing, a third-party claims administrator (TPA) will be engaged by the companies to administer claims for a period of 15 years. Sierra will be responsible for this administrator’s costs and for providing certain transition services for varying terms on behalf of CIIC. Folksamerica will reimburse Sierra for these costs from an account consisting of the unallocated loss adjustment expense (ULAE) reserves as of the closing, a percentage of premiums earned after the closing, plus accrued liabilities as of the closing.

In the fourth quarter of 2003, Sierra expects to record a charge of between $15.0 and $20.0 million. The charge includes the difference in CIIC’s equity, in accordance with accounting principles generally accepted in the United States of America, at Sept. 30, 2003, of approximately $90.7 million, and the combined cash and contingent payment amount of $79.5 million, plus certain related costs.

“We are very pleased to have reached an agreement with Folksamerica,” said Anthony M. Marlon, M.D., chairman and chief executive officer of Sierra. “The sale of our workers’ compensation business allows us to direct our attention to our core managed care operations, which make a significant contribution to our profitability.”

Sierra’s Nevada-based workers’ compensation TPA, Nevada Administrators, is not part of the deal with Folksamerica and will continue to operate as a subsidiary of the parent company.

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