Sale of Applied Underwriters Still Under Review; Cayman Islands Insurer Likely Involved

July 1, 2019 by

It appears that the Berkshire Hathaway workers’ compensation unit Applied Underwriters is being sold in a large acquisition, which likely involves Cayman Islands-based United Insurance Co.

A spokesman for the Applied confirmed that a deal is in the works, but took issue with the way some media reports last week portrayed the acquisition.

Some media reported last week that Applied is being sold by Berkshire Hathaway to United Insurance Co. That information appears to have come from a quarterly statement from California Insurance Co., one of Applied’s subsidiaries:

“In 2019, Berkshire Hathaway Inc. entered into a Stock Purchase Agreement (“Berkshire SPA”) with United Insurance Company (“United”) to sell its 81% interest in AUH,” a portion of the quarterly statement reads. “At the same time, United entered into a Stock Purchase Agreement with Sidney Ferenc (“Ferenc SPX) to acquire Mr. Ferenc’s 7.5% interest in AUH. The Berkshire SPA and Ferenc SPA were assigned to Steven Menzies who owns 11.5% of AUH. Steven Menzies will continue to own 11.5% of AUH and will be the sole owner of NAC (North American Casualty Co., which operates as a subsidiary of Applied) and indirectly the Company via a Form A filed with the CDI.”

Applied is reportedly 81% owned by Berkshire, but it’s incorrect to characterize the deal as it has been by some media outlets, according to Jeffrey Silver, general counsel of Applied.

“The deduction that United Insurance is buying Applied Underwriters is incomplete,” Silver said in a statement emailed to Insurance Journal. “Information in the March 30, 2019 quarterly filing with state regulators is technically correct but part of a larger transaction.”

Silver did not elaborate further.

United Insurance Co. is an alternative risk transfer facility that was formed in 1975, according to its website. The company provides fronting, reinsurance, risk pooling and segregated and protected cells, as well as risk financing for lines including aviation, workers’ comp, property, ocean and inland marine, kidnap and ransom, and employee benefits.

Executives at United Insurance Co. weren’t immediately available for comment.

The California Department of Insurance confirmed in mid-June that it currently has an application from Applied for its sale under review internally.

“Once the application is determined complete, portions of the file will be public and available to be shared,” CDI spokeswoman Nancy Goldberg said at the time.

A person familiar with the process of selling the carrier said similar applications have been submitted to insurance departments in other states where it’s required to do so.

“I can confirm an application is being reviewed by the various state regulatory bodies,” said the person, who asked not to be named.

Applied has not commented during the application process.

The effort to sell Applied appears to have started earlier this year due to a channel conflict. That 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.

At the time Buffet made his comment the sale was expected to close in the third quarter.

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.

Berkshire Hathaway acquired Applied in May 2006.

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